Factoring Loans vs Bank Loans for Businesses

Factoring loans differ from a bank loans in two significant ways. First, the factoring place emphasis on the value of the receivables, not necessarily the firm's credit worthiness or fixed assets. Secondly, it is the purchase of a financial asset (the receivable). Since factoring companies are not in the lending business and there is really no such thing as "factoring loans". There are plenty of other terms that this service is called including, business factoring, invoice factoring, receivable factoring, receivable financing and accounts receivable factoring but as you can tell they all have the same meaning.

To further clarify the difference of factoring loans, it is when a company purchases your accounts receivable invoices at a discount providing you with immediate cash. A traditional bank loan uses your company's accounts receivable as collateral, where factoring looks primarily at the financial soundness of your customers, not your company. Banks are regulated heavily and often have restrictive lending requirements relating to cash flow, profitability, equity, years in business and with banks seeking a 740 credit score just to approve the loan it almost prohibit them from making loans to small to mid-sized businesses. On the other hand, a factoring company has very few restrictions to approve a factoring loan. The factors decision to purchase invoices is influenced primarily by the quality of your customer base and their financial stability, and not the financial fundamentals of your company. You can even be a start-up company as long as you have verifiable invoices along with creditworthy customers. All that is normally needed is summary of accounts receivable aging, summary accounts payable aging and some other basic financial information.

When you obtain a loan, you will end up making payments each month of a certain amount, whether you can afford it or not. Even those shortfall months will require payments towards the loan. So what is different about factoring loans? You don't pay anything back, you simply get an advance and once your clients have paid the amount owed, the factor will relinquish the reserve which is a small percentage of the total invoices less the fee of the factor.

The factoring loans process is very quick, pain-less and solves the problems you are looking for without the stress and time it takes putting together the bank loan without knowing if the loan will be approved. USAFactoring.com has been doing factoring for over ten years. This year alone thousands of businesses will factor billions of dollars in factoring, and they are doing it for profit, growth, and in some cases, their very survival.