How is factoring different from a business loan?
In addition to being faster and having considerably less red tape, factoring has three main differences from obtaining financing through a bank loan.
Qualification is based on your customer's credit score: One of the main differences between factoring and applying for a business loan is how the financial institution determines your creditworthiness. When you apply for a business loan, your bank will base their decision on how creditworthy you and your business are. When qualifying for factoring, the decision is based on how creditworthy your customers are. That is especially helpful for a business that is already stretched its available credit, or to a newer business that has yet to build its credit history.
What is considered acceptable collateral: For a business loan, you will often be asked by the bank to put up collateral such as a building, piece of equipment, or personal assets like your home. With invoice factoring, the invoice sent to your client (ie: your accounts receivable) becomes your collateral, no other hard assets are required.
How and when it is repaid: Most business financing requires regularly scheduled payments stretched over a specified period of time (for example: monthly). With factoring, you receive an advance up to 95% of the invoice amount within 24 hours of submitting your invoice to the factoring company. Our factoring fees are deducted from the advance making the cost of factoring simple, easy to manage and affordable.