What is a Factoring Company versus a Bank Loan?
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Factoring is not a loan but the sale of your invoices to a Factor
A common misconception is that invoice factoring is a loan. However, this is not the case, and factoring is very different from bank loans. On a daily basis, businesses face problems with cash flow and working capital when customers buy their product with 30-90 day terms. Many don’t know which solution to turn to: bank loans or factoring financing.
You already know what a bank loan is. It is when a business borrows money from a financial institution, and in return, they pay back the amount of the loan with monthly payments, including a percentage of the interest rate. As you may have experienced, it is often difficult for business owners to get approved for a bank loan, and this process can take from several days to several months, locking up the benefits of having cash flow now while waiting for their customers to pay the invoices.
In fact, many small businesses are often unable to acquire bank loans and lines of credit. According to a 2021 report by Biz2Credit, the approval rate for small business loans in the US was around 13.5% in 2020. They can face problems such as insufficient credit, lack of collateral, time in business, and many more issues that cause banks to turn them down.
Invoice Factoring versus a Bank Loan
Factor financing or accounts receivable financing is a great solution for small businesses needing funds where bank loans let them down. When working with Bankers Factoring, small businesses are able to have quick and simple access to the essential cash they need, as well as access to our decades of experience and support system.
When a business decides to use factor financing, they sell their invoices to a factoring company. The factoring company provides up to 90% of the cash to the business, then collects the payment themselves from the business’s customers. Many times invoice factoring and banks work together to get you additional working capital above and beyond your bank credit facility.
Factor financing is a thriving industry, and according to a report by Persistence Market Research, the global invoice factoring market is expected to reach $3.3 billion by 2025. Why? It’s a great way for businesses to get low-risk working capital in a very short period of time.
With Bankers Factoring, we often provide same-day funding after the setup of your factoring facility with us. This process allows businesses to receive their cash in a fast and efficient manner and keep working capital flowing through their business.
What are the Advantages and Benefits of Factoring?
There are many advantages to factor financing when compared to traditional bank loans.
Factoring companies offer:
- Quick and simple access to cash
When working with factor financing, businesses have access to their cash in a quick and efficient manner, as opposed to bank loans which often have a long and cumbersome process of approval. Working with Bankers Factoring, we are often able to provide same-day financing, getting your business the working capital it needs with no delay.
- Bad debt protection
Bank loans can create daunting debt, whereas when factoring, debt will not be involved at all. When working with Bankers Factoring, you receive the security of bad debt protection via non recourse factoring. If your client fails to pay back the invoice, we will absorb the risk, protecting you and your company.
- No need for additional collateral
When dealing with bank loans, you will often need collateral to secure the loan. However, with factor financing, this is not necessary. Bankers Factoring will take on the risk of collecting your most liquid collateral, and your accounts receivable, providing safety and peace of mind, and no risk of collateral being seized.
- Predictability in cash flow
Factoring financing provides predictable and reliable cash flow. Bankers Factoring has decades of experience working with businesses just like yours. You can feel safe and secure in the knowledge that their money and finances are in good hands. Learn more about why Bankers Factoring is the best choice for you.
What are the Risks of Bank Loans?
When businesses need working capital now, they often consider bank loans as a potential option. However, there are many uncertainties associated with bank loans.
- Strict approval process
Bank loans come with a strict and difficult-to-meet approval process. It often requires extensive documentation and research into your company as well as checking your credit score, and if it does not meet their criteria, you risk not being approved. According to a report by Fundbox, 64% of small businesses that use invoice factoring are doing so because they are unable to obtain a traditional bank loan.
When working with Bankers Factoring, we check your customer’s credit and not yours. You will get easy approval with much less documentation required than a bank loan. This action will able you to get access to your funds quickly and easily.
- Acquiring debt
Taking on a bank loan equals taking on debt. This will create risks for businesses, especially those that are start-ups and small businesses. With unpaid dept, it can cause damaging consequences to for the business. These can be a drop in the business’s credit score and banks taking legal action. With filed lawsuit and legal action taken, it can risk a business’s security and safety. With Bankers Factoring, you will take on absolutely no debt, avoiding these problems entirely.
- Collateral requirements
Banks often require collateral in the loan approval process. This can include items such as real estate, inventory, securities, and personal guarantees. According to a 2021 report by the Federal Reserve, real estate become one of the most common types of collateral used for business loans. With unpaid debt the bank can seize these items. This event can create serious implications for a business’s operations. With factoring, no collateral will be involved and it can be prevented.
- Restricted flexibility
Many banks restrict what businesses do with the funds they provide, blocking potential opportunities and leaving businesses vulnerable to changing market conditions. Factoring companies do not have restrictions on the use of the money provided. This allows businesses much more flexibility and freedom.
Factoring is fast and safe working capital
When your business needs working capital fast, let Bankers Factoring take care of you. Receive the best factoring services on the market with our low factoring fee. Don’t wait 30 to 90 days for invoices to pay with our invoice factor financing option. Is factoring a loan? No, factoring is not a loan but the sale of your open accounts receivable.