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Unsecured Loans vs. Invoice Factoring

If you are a business looking to secure money in order to grow your business, cover unexpected expenses, fulfill a large order or just pay your bills, you have a number of options to choose from. Traditional bank term loans are available but can be difficult to get if you are a new business or one without significant collateral or assets. Additionally, a small business loan from a corporate bank is notoriously slow and bureaucratic process requiring several weeks of waiting before getting your money, if you even get it at all.

A Collateral-Free Option: Unsecured Business Loans

Loans High Interest RatesFor businesses without assets, unsecured business loans can be a convenient option. Because they do not require you to put down any collateral and can provide you with cash quickly, they have become a popular option for many. However, to get these loans you must still meet revenue and credit requirements. Traditional bank loans may require you to state the purpose for which you are seeking the money and they may make the loan decision in part based on this reason. A collateral-free loan does not consider the purpose for which you need the money.

Unsecured business loans, however, can often include higher interest rates as compensation for the lack of collateral. This means that you will most likely pay more for your money in order to get that loan so it can be viewed as a trade-off. This weighty decision is one any business must consider before securing an unsecured business loan.

The Account Receivables Factoring Option

Account receivable factoring or invoice factoring works differently than both regular startup small business loans and unsecured business loans. Instead of relying on you to sign over your assets as collateral, with factoring receivables you sell your current invoices to the invoice factoring company. You get the cash you need right away and the factoring company takes over the responsibility of collecting the money owed to you from your clients.

Similar to other types of financing options factoring services charge a fee or percentage for providing you with the cash you need right away. The terms of the agreements are listed in a clear, easy to understand language. So regardless of which financing option you choose it is a good idea to consider and weigh the cons and pros of each of them and determine which is best for your situation.

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About the Author:

Robert Bernfeld started in the commercial finance industry in 1974. His early years included positions with Aetna Business Credit and Foothill Group. During the next thirty five years. Mr. Bernfeld established both equipment leasing and accounts receivable factoring companies. He partnered in founding Business Facilitators, Inc. in 1999. Mr Bernfeld graduated from the University of California, Riverside in 1974 and received his Juris Doctorate from Loyola University School of Law in 1977.

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