For new companies, the ability to get a bank loan is almost nil. The vast majority of banks will not even consider loaning money to a company that hasn’t been in business at least 3-5 years. They consider it too much of a risk.
Companies that are brand new also have not built up adequate credit history, and so the ability to determine their credit worthiness is simply not possible. Banks, especially in today’s economic climate, are just not ready to give money to companies with little or no credit history. Fortunately, there are other options available for businesses just starting out.
Invoice factoring is a viable option and can be very beneficial to companies looking to grow.
Factoring invoices in order to raise money is much easier then attempting to get a bank loan. There are no intensive, financial audits. Businesses with below average credit can qualify because the factor is more concerned about the credit history of the company’s customers than they are about the company’s credit.
Another great benefit is that factoring allows companies to bankroll certain projects without a loan. As a result, when a company is in a position to receive a loan, they will be more likely to qualify for it because they don’t have a surplus of existing debt. Below are few of these benefits more in depth:
Even business with below average credit can qualify for factoring: One of the biggest hurdles for companies trying to get a bank loan is their credit. Banks typically only want to do business with and loan money to companies that have clean credit records. Therefore, companies that have a few blemishes may be automatically excluded from consideration even if they are strong in other areas.
Factoring companies consider the credit worthiness of a business’s clients because that is who they will be collecting from. They are not as concerned about the credit history of the company selling the invoices.
Factoring is not a loan; factoring involves a business selling their invoices or accounts receivables. This is not a loan by any means. This makes the company appear stronger on their balance sheets because they are not mired in debt.
A business can sell as many or as few invoices as they like.
Factoring allows for a quick cash infusion: Imagine if your company needed money in 8-10 days. The likelihood of your business being able to secure a new bank loan in this period of time would be small. In fact, it would probably never happen. However, getting cash in this amount of time may be possible with factoring. Factoring can help your business get the cash it needs in as little as 48 hours. It is much easier and requires far less work than attempts of securing bank financing.