Factoring vs Bank Financing

Invoice factoring is often misunderstood as being an expensive method of financing when compared to traditional bank financing. Actually, that’s not true. When you compare the fee factors charge versus the interest rate banks charge, factoring appears to cost more.

Factoring companies provide services such as accounting, credit services and receivables collections. Banks don’t offer these services for small businesses. Here are many more differences between invoice factoring and bank financing:

 Factoring Bank Loans
Cash flow statements Not Required Required
Complete financial statements Not Required Required
Income tax records Not Required Required
Proven financial track record Not Required Required
Future financial plan Not Required Required
Excellent personal credit Not Required Required
Federally regulated No Yes
Collateral Receivables
All assets
Borrowing amount Invoice amounts
Limited to bank terms
Interest cost basis Invoice amounts Entire bank loan
Perform receivable collections Yes No
Perform credit check of customers Yes No
Application approval process 3-5 business days 1-2 months
Cash availability Instantly upon approval 1-2 months

Bank loans are very difficult for small businesses to obtain these days. Not only are banks so heavily regulated by the federal government, but bank qualifications for a loan far exceed those for a factoring agreement.

Banks primarily focus on the credit of the borrowing business and its owners, while factoring companies focus on the credit worthiness of the business’ customers. A business can qualify for factoring within days. A bank loan approval can take months. With factoring, cash is available much quicker.

Mazon Associates

Mazon Associates is a Dallas factoring company that has over 40 years experience in the factoring industry. Mazon provides friendly, responsive and professional factoring services and they help your  business improve its cash flow. Call Lisa Hultz at 800-442-2740 to discuss your factoring needs.