Question About: Can Factoring Be Better Than A Bank Loan?
What I have found is that normally a business owner who needs financing for the growth of their business start their financing search by looking for a business loan or a business line of credit from a bank. The reason is that business loans and lines of credits from a bank are well known products. However, due to the regulations imposed on the banking industries loans are very hard to get. What I have found in the real world is few businesses actually manage to get them unless they are collateralized by equity in real estate or equipment.
As a result, the accounts receivable and inventory financing needed in a growth mode is the most difficult financing to obtain from a bank. There is an alternative for such growth needs, which is factoring. Factoring is offered by commercial finance companies. In the vast majority of cases, factoring may be a better and easier solution to obtain than traditional bank financing to fund the growth of a business.
Determine if Factoring is the Better Alternative
To determine if factoring is a better alternative than a business loan you just need to ask yourself these questions:
1. Does my company provide goods or services that are completed when I invoice my customers?
2. Are my customers not paying within the credit terms I am offering?
3. Are you turning away sales because you do not have the cash?
4. With cash, is your business growth potential greater than 20%?
If your answers were yes to these questions, then factoring your accounts receivable invoices is better for you than a traditional loan that you can obtain from banks. Accounts receivable factoring provides a business with financing flexibility based on your sales. A properly structured factoring program eliminates slow payment cycles by providing your business with cash to grow your business.
As a business owner, you should be aware and open to all financing products available to you by either a bank or commercial financing company and choose the one that best fits your company’s needs.
For more tips on how to improve cash flow, click here to access our 25 Ways to Improve Cash Flow whitepaper.
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.