|FACTORING VS. BANK FINANCING|
Obtaining credit in general and business credit in particular, has become Increasingly complicated and difficult, in fact, for many businesses, it has Become downright impossible.
Lending standards and requirement are now more stringent than
ever and Personal guarantees are now almost always required. Traditional
lending sources are often unable or unwilling to provide all of the
assistance needed by a business. That where factoring comes
in. Factoring can sometimes solve problems for a business that has nowhere
else to turn.
Traditional financing can provide money for expansion of a
business. However, a bank's limitations can make it unsuitable for the needs
business that is growing rapidly because at some point the
banker will deny
request for a higher credit limit, banks quality clients based on their
current sales and the ability of their customers to pay.
In addition bank loans are normally short- term and become payable in less than a year.
Each time the business needs an extension it must go through
the original loan procedure again. With factoring, a business can factor any
all of its invoices or a portion of them. And the business can
increase the amount of cash it receives by simply factoring more invoices.
It is easier to adjust the cash flow of a rapidly growing
as opposed to traditional bank financing.
Factoring is flexible and immediate.
Factoring requires no collateral, lien or security interest. That is why it is so attractive to new business. New business usually can't meet the requirements set by banks simply because they are new business. Factors can help new business because it is not a loan. It is the selling Of invoices. A business does not incur debt by factoring it is selling its invoices at a discount in exchange for cash. Additional factoring requires no penalties or lump sum payment to terminate the factoring relationship. That is the opposite of most other forms of financing.
(Source: brief introduction on factoring by Laurence j. Pino.)