If you're in need of business funding, you'll come across two methods: Bank loans and invoice factoring. Small business loans are typically what come first to a business owner's mind, but... they are not always the most beneficial due to a multitude of approval steps, an excess of documentation required and high interest rates.
Enter invoice factoring, our favorite business funding method by far. When it comes to Invoice Factoring vs. Bank Loans, factoring always wins. Here's why:
1) Funding in 24 hours instead of waiting months.
The factoring process is super quick and easy. As soon as you fill out an application and your invoice has been approved, the factoring company can wire the funds to your bank account within 24 hours. Yep! You heard that right... 24 hours! No more worrying about making payroll or buying materials to keep the company moving.
Or... you can wait 60 to 90 days for a small business loan which you may not even get approved for... You make the call.
2) Factoring pays you money you're already owed instead of accruing more debt.
With bank loans, all financial responsibility falls on you, your credit and your business. With factoring, the repayment is the responsibility of your client since this is an invoice they already owe.
Here's how it works: A factoring company gives you cash in exchange for your company's invoices. Then, your client pays the invoice, just like they would have, except it goes through the factoring company since they've purchased your invoice.
3) Funding is approved based on your customer's ability to pay their debts, not yours.
Instead of investigating your company's credit-worthiness (like banks do), factoring looks at the financial strength of your customer. Funding through factoring depends on the client's credit and repayment history, and the amount of funding received is based on the value of the invoice.
4) Even startups can get approved.
If you're in the early stages of your business, most likely you have little to no business credit. Factoring lets you gain funding without the complications of a bank loan. If you've done the billable work and you have the invoice, you're good to go.
5) You have more room for negotiation.
Typically, factoring asks your client to pay back the invoice within 90 days. But this method also allows you, the business owner, to negotiate the terms of your client's payback period and interest rates before entering into a contract with your factoring company.
You also have the power to decide which invoices get factored and how often. You are in control, not the bank.
Even though small business loans have traditionally been the go-to financing method for businesses, the process is overly complicated and outdated. Invoice factoring is a quick, accessible and beneficial alternative for companies in search of funding.
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