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Factoring vs. Bank Loans

Invoice Factoring or Bank Loans: Which is Best for Your Business?

Both invoice factoring and bank loans can be great financing options, but how do you know which one is right for your business? It’s important to know the differences between the two in order to make a decision that best fits your line of work.

As businesses grow, they often find themselves needing additional financing for expansion, meeting payroll, and covering business expenses. Sometimes, corporations are financially strong enough to obtain a bank loan as a means of increasing credit. Other times, however, alternative finance methods are necessary.

For certain companies, traditional bank loans don’t make sense – or they’re difficult to get approved. This is especially true for business owners that are looking for funding on an as-needed basis or don’t want to add more debt to their balance sheet.

Banks offer little leverage to meet the additional borrowing needs and can possibly even hurt your business more than help. Let’s break down what’s best for your business – invoice factoring or bank loans?

Alternative to Invoice Factoring

The Cost of Invoice Factoring

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Understanding the Differences Between Invoice Factoring and Bank Loans

Invoice factoring is an alternative financing solution that helps companies stabilize cash flow by unlocking the cash sitting in unpaid invoices. This process, also known as accounts receivable factoring, involves treating invoices as collateral, which are sold to a factoring company.

The amount of capital available grows with your business. As long as you have invoices to factor, funding is available!

Working with a bank is a solid option for many business owners, but the lending market remains tight. If you’re lucky enough to be approved, the loan amount may not be enough to meet your financial requirements. On top of creating more debt you’ll have to repay.

Factoring companies offer funding for businesses of all sizes and stages. From start-ups to long-established companies, invoice factoring is a smart solution to combat cash flow crunches without taking on additional debt.

How Invoice Factoring Works: Step-by-Step

  • Contact the factoring company and provide them with information about your business, including your unpaid invoices, credit history of your customers, and the industry you do business in.
  • Fill out an application and the factoring company will review it and match you with the best factor for your business needs.
  • Once approved, you’ll receive a factoring agreement that outlines the factoring agreement, including any fees, factoring limits, and advance rates. Review this agreement before you sign.
  • Once you’ve completed the factoring agreement, you can send your unpaid invoices to the factoring company. They will then verify the invoices and advance a percentage of the amount to you, up to 90%.
  • The factoring company will work with your customers to collect payment and then you’ll receive the remaining invoice amount, minus a small factoring fee.

How Bank Loans Work: Step-by-Step

  • Do your research on what bank would be the best fit for your business.
  • Make sure you have all your financial documents, including financial statements, tax returns, bank statements, etc.
  • Be prepared to provide information about your business and how you plan to use the loan.
  • Schedule a meeting with a loan officer at the bank of your choosing and be sure to bring any financial and business documents you may need.
  • Fill out an application and provide all the necessary information about your business, finances, and how much money you’re requesting.
  • The bank will review your application and make a final decision. Be patient – this part can take weeks or even months.
  • If your loan is approved, the bank will provide you with the funding. Read your loan agreement carefully so you understand the repayment terms.
  • From there, make timely payments to maintain in good standing with the bank and avoid defaulting.

Think Outside the Bank Loan

Invoice factoring is a simple & debt-free business financing option. Contact us to get started.

Advantages of Invoice Factoring over Bank Loans

Businesses often need additional funding but are unable to meet the stringent borrowing requirements to qualify for a new bank loan. In this case, they are often referred to a factoring company like Factor Finders. In fact, Factor Finders often gets customer referrals from local banks that want their customers to receive the financial help that they can’t provide.

Quick Application & Approval Process

It’s no secret that banks are strict when it comes to loan approval. Not only can they take a long time, but loan decisions are based on a combination of the company’s previous years’ operating history and the business owner’s credit score. The bank loan approval process can take weeks, or even months. Whereas factoring applications can be approved in as quickly as 3-5 days.

Funding When You Need It

Invoice factoring ensures you receive the funding you need within 24 hours. Factors buy your eligible unpaid invoices at a discount and advance you up to 90% of the total amount within hours of verification. When your customer pays the invoice, the factor will release the remaining balance to you, minus a small factoring fee.

Debt-Free Form of Financing

Traditional bank loans will give you a certain amount of money, which you’re expected to pay back over a set amount of time, in addition to a generally high amount of interest. In order to obtain more funding, you’ll have to add more debt to your balance sheet.

With factoring, you don’t incur any more debt – you’re selling a valuable asset in the form of your unpaid invoices. On top of that, you get to choose which invoices your factor and how often. You aren’t locked into a long-term contract and terms are flexible.

Factoring offers financial solutions that can yield unlimited growth for agencies. Including:

  • Credit Protection
  • No Debt Added to Balance Sheet
  • Collections Services
  • Credit Analysis
  • Same Day Funding
  • Unlimited Funding Potential

Factoring Could Be The Solution Your Business Needs

If you’ve been declined for a bank loan, you’re not alone. It’s not uncommon for banks to deny small business owners funding, especially if it’s newly established. Factoring companies base their approval on the credit of your customers since your customers are the ones responsible for paying the invoice.

Invoice factoring is a great alternative financing solution for bad credit, no credit, or companies that don’t want to add more debt to their finances. In fact, factoring can provide the financial stability your business needs to improve your credit score.

Factor Finders works with the best factoring companies across the United States. We will match your business with a factor that specializes in your industry to meet any specific goals or needs of your business.

Bank loans aren’t your only option.

You could receive cash as soon as today! Call us at (216) 292-5660.

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