invoice financing vs bank loan

Invoice Financing vs Bank Loan

Factoring Advantages

Factoring Bank Loan
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

Factoring is often misunderstood as being an expensive method of financing. Actually, that’s not true. Yes, when you compare the fee factors charge versus the interest rate banks charge, factoring appears to cost more. But factors provide services banks do not. They typically perform a significant portion of the accounting work for their clients; provide collection services and credit checks; and generate financial reports to let you know where you stand.

Business bank loans are very difficult 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. Bank qualifications are primarily based on the credit worthiness of the business and its owner. Factoring is based 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 almost immediately.

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Mazon Associates

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