Factoring As An Alternative To Bank Loans

With small businesses being the responsible for more than 39% of the gross national profit, it's easy to see why they are so essential. Even still, a lot of small businesses are finding it increasingly hard to give their company's a great financial start. Some find it difficult to get a running start with a lack of steady capital, and even with solid beginnings, start-up costs aren't the end of the battle.

Running a business is just as, if not more, expensive as starting one. Once the money runs out, it's almost impossible to see any real growth without cash flow. Everything from marketing, paying employees, and buying inventory can become too costly to keep up. With banks avoiding loans due to an unsteady credit climate, there is little more to do than find suitable alternatives.

Between 2009 and 2011, 397 banks failed. This fact put the remaining banks in a bad spot when it came to choosing people and businesses to approve for loans. As banks adopt more invasive procedures to protect their own capital, a lot of businesses still feel stranded. Even when small business owners turn to alternative loans, such as home equity loans, they are often sent away empty-handed. Factoring has stepped up as a major relief for owners who feel like they've been left out to dry.

Here are some situations that could leave you out-of-luck with a bank (and how factoring can help instead):

New Business

A new business poses a huge risk to banks. It is estimated that about 50% of small businesses fail in their first five years. Banks take these stats into consideration and, in turn, consider companies with a sterner eye. Factoring can eliminate this worry as the very different approval process does not depend on the success of the business in the long run. Many businesses use factoring to boost their start and then adopt other methods later.

Inconsistent Cash Flow

One of the top reasons that small businesses need a loan in the first place is also one of the top reasons banks reject small business loan applications. Factoring takes your customer's financial strength into consideration, not yours, so it is more likely to work out.

Customer Variety

Many banks even look into the types and amount of customers you serve. If your client list is small and based on regulars, it can hurt your chances of getting a loan. Your regular clients are more of a good sign in terms of factoring, as they are proven to pay.

The increase in companies using factoring is no surprise considering the hassles many have with banks. It's a huge step to finding growth, stability, and success in the shaky world of small business.