Business Financing – Let the Buyer Beware

Business financing is one of the most important decisions you, as a business owner will make. A business owner who has decided that factoring is the best solution for his or her business faces another challenge: Finding the best factoring company for their specific industry.

Online Business Financing

On-line lenders promise quick and easy money, while institutionally owned factors promise lower rates. These entities tend to leave out the important information regarding contractual obligations, funding minimums or maximums and fees.

Banks and Hedge Funds have also joined the factoring world, with more advertising causing more confusion. Bank owned factors may advertise low fees, however, do not explain the criteria for offering those low fees. Banks have to reduce their own risk in order to offer low fees to a business owner. Banks do this by requiring the business owner to provide a personal financial statement list and pledge his or her personal assets to the bank.

Extensive documentation is required from the bank, including the 3 prior years business and personal tax statements. Banks also generally reserve the right to deduct money from the business owner’s checking account if they become concerned about the ability of the business owner to live up to their contractual obligations. The bank will set lower credit limits on the customers of the business and will be more sensitive to concentration issues.

A bank-owned factor must set a maximum they will fund limiting the client from growing beyond that point. An important thing to remember is that the factor is a division of the bank and is part of a federally regulated institution. Bank underwriting regulations must be followed with no exceptions, causing delays in funding.

Also, any referring agents should keep in mind that the main reason a bank offers factoring is so they can capture another valuable deposit account.

Determining Your Business Financing Needs

How do you, the business owner find the best factor for your business needs? Contact an independently owned and operated factoring company. A good company will answer all of your questions and give you a transparent view of how they do business and what you can expect. Speak with companies that do not have application fees, which is just another quick way to generate revenue for the factoring company.

Our most successful clients come to us with many questions about business financing. We give them answers along with critical information and answers that they did not know to ask. We work with each client to find the best solution for his or her specific business. Not only does this help the business owner make a good decision, it eliminates misunderstandings once he or she becomes a client. The best-informed business owner becomes our best client.

By American Receivable Corporation Founders: Jack Stieber and Brad Gurney