If You Need A Small Business Loan You Better Take A Look At Factoring

Unfortunately for small business owners banks continue to "say no" when it comes time to ask for a loan or credit facility.  We had expected this to change in early 2010, but business credit is still very hard to get from banks.  Factoring companies and other non bank sources continue to provide a nice alternative to all the bank loan headaches and often provide more working capital in the long run.  The cost of funding is higher, but often not out of line when all the benefits of receivables financing are considered within the business model.

Most banks continue to act like they want to provide lines of credit for growing businesses, but a very high percentage of these potential loan customers end up wasting a lot of time and effort for nothing.  After completing a 4 or 5 page application and providing stack after stack of documents which often include 3 years of tax returns for the business and personal, financials, bank statements, and more.  Then the customer is told we are working on it for up to 6 months before getting a rejection letter from the bank.  If this sounds like your experience you should take a look at other sources of working capital.  If your business sells to other business's then factoring your accounts receivable may provide the working capital you need.

Factoring companies typically can advance 80% to 90% of the accounts receivable in good standing.  The cost for these cash advances can range from .5% to 5% of the total invoice value depending on how much you factor and the credit quality of the customers you submit for factoring.  Most small businesses that can operate more efficiently with getting cash into your business quicker fit very well for this financial tool.  Once you're approved with the factoring company your growth is only limited by your sales ability as long as your customers have reasonable credit.  This is very similar to how bank lines of credit work when tied to the accounts receivable as the primary collateral.  The difference is the bank facility is very hard to get and the credit limit is not very flexible.  With factoring the credit limit can increase as your sales increase and this often can make more sense.

If your business needs working capital the bank is not providing a solution, then it's time to give factoring a look.  Most factoring companies are very interested in earning your business and will not require all the paper work the bank demands.  You will pay more for the funding, but you will get the funding in most cases and not waste all the time and effort with a bank that really has no interest in taking any risk.

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