Factoring vs Banks For Small Businesses | Business Factors
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Factoring Company vs Banks: Which is Better for Small Businesses

Invoice with Paid Stamp - three invoices with paid stamped on them. All details are imaginary.As your business grows, you can find yourself needing more funding to keep up with expansion. There are many ways that your business can acquire these funds, but which is the best for long term success? We are going to review two major financing options so that you can determine which is best for your business – small business factoring or small business loans from a bank.

What is Factoring?

Factoring is a third-party financing solution that helps businesses get money for their unpaid invoices. A factoring company will purchase the outstanding invoices between you and your client in order to put cash in your pocket.

How Can A Factoring Company Help Get You Funding?

There are many benefits to using a factoring company over going through a bank to get a small business loan. Because a factoring company is a third-party financier, they you will not be threatened with more debt to your business. Small business factoring is also a faster solution for your business. Typically, you can get the cash from your invoice in less than 24 hours.

Some factoring companies will also offer long-term financing options. What makes them different from banks is that they can provide the same financing, but at lower rates. A factoring company is a great outlet to receive loans such as asset-based loans, term loans, and small business loans. With their low rates, you are able to keep more money in your pocket, while getting financing you need to grow your business.

Most factoring companies do not look into your past financial history or personal FICO score. These companies base your credibility on the relationship you have with your clients. The strength of your client base is all you need to show that you are a credible company so that you can get the cash you need faster than you would through any other financial provider.

What is a Small Business Loan?

A small business loan is a type of funding, typically given by a bank to help your business get the funds it needs to grow into a larger business. A bank will review your past, present, and future projected business plans in order to come up with a sum of money that they see fit for your business’s capabilities. A small business loan often comes with more expensive terms and higher interest rates.

How Can A Bank Help Get You Funding?

Unfortunately, getting funding from a bank is a more complicated process than factoring. When you apply to receive a small business loan, you can wait anywhere from 30, 60, to 90 days. In addition to a long wait time, loan decisions are based on your businesses previous financial history and personal credit scores, which can hinder the chances of getting a loan or getting a high enough loan to cover outstanding costs.

If you need funding to let your business grow, you don’t have time to wait to get the financing you need. When you choose to get funding from a bank, the wait time to receive your funding can hinder your business enough to put you in further debt or even bankrupt your business. In addition, factoring credit lines seamlessly increase with your daily business needs while a bank credit line is a set amount making growth difficult.

We hope that this comparison changes the way that you see factoring. Factoring is the fastest, easiest, and most reliable form of financing for your small business. Don’t incur another penny of debt from a bank to fund your business.

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About the Author:

author image Since 1991 I specialize in Invoice Factoring, PO financing and ABL facilities. I currently work internationally with companies in the US and Canada via our internet marketing division. Specialties: Accounts Receivable Factoring and Payroll Funding for Manufacturing, Oil & Gas, Telecommunications, Wholesale Trade Distribution, Staffing and Transportation. I always enjoy helping companies rise to the next level of success.

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