Factoring Services for Small & Medium-sized Businesses


Bank loans What are the Facts?

At one point, bank loans (and the debt that comes with them) were a necessary evil. While it is still beneficial to receive a bank loan if you can manage to qualify for one, there are many downsides to the process, especially for the small business owner. It is a long process that can take weeks, sometimes months. In the meantime, your small business suffers greatly due to both expected and unforeseen costs. When a loan is approved it still carries with it a lot of additional worries, wait times, and interest.

It has become common to seek other ways to achieve funding for business in hard times. Accounts receivable factoring companies provide capital without the hassle of immediate debt or lengthy wait times.Bankers-Catamount-Sept-full.jpg

When one decides to go after a bank loan, it helps to know what you're getting into and should expect. Here are just some facts to note regarding bank loans and their funding process:

- Loan Types and Interest Percentages Vary

There are many different types of bank loans. Your specific loan will be chosen by your bank with little input from you and will depend on a variety of factors, including what the money will be used to accomplish. Loans carry varying interest rates, massive amounts of scrutiny, and a lot of fine print.

For small businesses just getting their start in the world, this can count against them in a number of ways. High interest rates are an added hassle to the already expensive world of small business but a reality of many loan options.

- Banks Look to Your History to Qualify You

As a small business, new or old, you aren't likely to have a lot of flashy numbers to prove your worth to a bank. Even loans catering to small businesses will see banks scrutinizing your financial and operating histories, credit scores, and spending behavior. Any bad patches will be a notch against you and potentially disqualify you from the loan altogether.

- Lump sums for All

A bank loan is typically a lump sum - you get everything at once and have to pay back the entire amount, plus accrued interest. Depending on your loan type and agreements made, this could prove to be a problem later on in the life of your business.

The very act of getting a loan puts you into immediate debt. There are specific clients that banks are after, and only a small number of businesses actively fit that description. Even still, some businesses can benefit greatly from the help of a loan, especially for startup costs.

Funding is Still Possible

While bank loans create a debt immediately, invoice factoring does the exact opposite. When you sell your invoices, you are not borrowing money - it is money that is already owed to you. This means that things like interest rates and principal have no bearing on your business, and you can receive funding worry-free.

A factoring company has more interest in the debts and credit history of the debtor, not the seller. Factoring agreements are typically over once the payment is received from the debtor, giving you freedom from long loan terms and a better hold over your own business. That freedom is often seen in the choices you hold as the seller - you choose the number of invoices to sell and how often. The simple process and lifecycle involved in invoice factoring makes it a comfortable and easy choice when a bank loan is impossible or unattractive.

Factoring Alongside Bank Loans

A bank loan, while not exactly beneficial to all, is still a necessary route for some. If approval is guaranteed and the payments are affordable it can be a huge bonus to starting and maintaining your small business. The risks should always be understood, as well as the life cycle of the loan and any complications that could arise. Being approved and receiving funding is only the beginning of the loan process.

Combining the benefits of invoice factoring with bank loans can lead to a wonderful financial climate. At the end of the business day, the biggest goal is to find manageable funding to keep your investment not only afloat, but continuously successful. Understanding the facts about bank loans - and the alternatives - gives you a fighting chance.

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