Many firms have seen their sources of credit dry up – and rapidly – since the credit crisis erupted in 2008. Consequently, many entrepreneurs were unable to acquire the capital they required to start new and lucrative company ventures. As a result, company development has slowed, and the entrepreneurial spirit has been severely hampered.
Independent lenders have opened their doors to provide temporary finance to small and medium-sized firms as banks tighten their grip on the market. One of the most promising alternatives to bank finance is factoring. Let’s have a look at what Factoring is and how it works. Factoring is a form of financial transaction that allows firms to borrow money to expand or overcome short-term liquidity shortages.
Factoring is simply the process of buying a Business line of credit. Factoring focuses on present receivables as well as historical cash flow and a company’s capacity to repay, whereas standard bank financing focuses on cash flow and balance sheets. Factors employ the collateral that comprises your receivables instead of a bank’s actual collateral, such as a building, a life insurance policy, or something else.
Factoring is much, much faster than standard bank financing, which normally takes 30 to 60 days to get funds to a firm that has been authorized. Within four to seven days, the first funding is normally approved and closed. Invoices that haven’t been paid yet can be paid in as little as 24 hours.
When you sign a factoring arrangement, you have a one-stop-shop that makes it easier for you to keep your bad debt risks to a minimum. ITC has an established system in place that allows our clients to get comprehensive credit reports on all of the payers, including their credit history, payment dates, and default rates.
When a business owner chooses to factor, the factoring company keeps a close eye on the credit risk, ensuring that no defaults occur. As a result, you and your workers are free to pursue profitable and exciting new business prospects instead of heavy-duty collections labor. Factoring, in a nutshell, may be a useful accounting technique for a business owner who is struggling with cash flow issues.
Cash Flow For Your Business
Getting a commercial Business line of credit, like any other type of funding, starts with establishing your company’s creditworthiness. For example, what your present credit rating is and how much money your company is making at the time you apply for a commercial line of credit. In the beginning, you and your lender will work together to come up with a loan amount that you both agree on.
You can use a commercial line of credit to capitalize on unexpected business opportunities or simply supplement revenue dips. To put it another way, you have access to a quick, dependable source of funds that don’t need to be reviewed every year and maybe repaid over time. A commercial line of credit allows you the opportunity to breathe life into your ideas.
You have freedom, as previously said, and that freedom comes in the shape of actual cash availability in the case of a business line of credit. Furthermore, you only pay interest on the money you use, not on the whole credit line. Contact IBF Commercial Finance today for a free, no-obligation consultation if you desire independence.