The main differences between freight factoring and a traditional business loan are ease of qualification, ease of use and fast funding.
Easy Qualification: Banks base their decision on how creditworthy you and your business are. This is a lengthy process involving a complete review of the owner’s and the business’s financial statements, assets and liabilities. Often, the bank will require you to put up collateral such as a building, piece of equipment, or personal assets like your home in order to secure the loan.
Factoring companies base qualification on how creditworthy your customers are. That is especially helpful for a business that has already stretched its available credit, or to a newer business that has yet to build its credit history. Qualifying for factoring is a quick and simple process, usually taking just a few days to complete.
Ease of Use: Once approved for a commercial line of credit, banks impose highly restrictive covenants that govern the loan. These restrictions can severely limit or even restrict you from accessing funds even once the loan is approved (read more). Further, most business financing requires regularly monthly payments that if missed will results in costly penalties or cessation of funding.
Factoring invoices to receive immediate access to funds is easy. As long as you continue to work with creditworthy customers, funding will carry on. The more invoices you submit, the more funds you access. Factoring fees are a small deduction from the funds advanced, making it simple to manage and affordable.
Fast Funding: It is common for banks to require a monthly certification process in order for your company to draw upon it’s line of credit. This is a control measure to minimize the risk the Bank wants to assume. These monthly audits will likely dictate the amount of accessible funds and when they are available.
Receiving funds from invoices that have been submitted for factoring is fast! Depending on the time of day when invoices are submitted, funds are often transferred the same day. Otherwise, funds are sent within 24 hours. The more invoices that are submitted, the more funds are made available.