Small business owners often need to secure additional funding to support their operations, whether it’s to purchase new equipment, hire additional staff, or expand their operations. However, traditional financing options like bank loans or lines of credit can be difficult to obtain, particularly for small and new businesses. In such cases, factoring can be a smart and viable choice for small business funding.
Factoring is a financial transaction in which a company sells its accounts receivable (i.e., the money it is owed by customers) to a factoring company at a discounted rate. The factoring company, in turn, advances a percentage of the value of the accounts receivable to client, usually 85% to 90%. The factoring company then collects the payments from the customers and takes a fee for their services and returns the balance.
One of the biggest advantages of factoring is that it allows small businesses to access funding quickly and easily. Unlike traditional financing options, which can take weeks or even months to secure, factoring can be completed in a matter of days. This can be particularly beneficial for businesses that need to cover unexpected expenses or take advantage of time-sensitive opportunities.
Another advantage of factoring is that it is relatively easy to qualify. Unlike bank loans or lines of credit, which require a strong credit history and collateral, independent factoring companies, like American Receivable, base their decision on the creditworthiness of the business’s customers. As long as the customers have a good payment history, the factoring company is likely to approve the funding request.
Factoring can also help small businesses to manage their cash flow more effectively. By selling their accounts receivable, businesses can convert their unpaid invoices into cash, which can be used to cover immediate expenses. This can be particularly helpful for businesses that operate on a tight budget and need to ensure they have enough cash on hand to cover payroll and other expenses.
Furthermore, factoring can help small businesses to avoid taking on additional debt. Unlike traditional financing options, which require businesses to take on additional debt that needs to be repaid with interest, factoring is not considered a loan. Instead, it is considered a sale of the company’s assets, which means that the company is not taking on additional debt.
In conclusion, factoring is a smart choice for small business funding for many reasons. It provides quick and easy access to funding, is relatively easy to qualify for, helps manage cash flow, and can help avoid taking on additional debt. Small business owners should consider factoring as a viable financing option, especially if they are struggling to obtain traditional financing options. Fund your small business with American Receivable today!
Jack Stieber jack@americanreceivable.com 972-404-4726
Brad Gurney brad@americanreceivable.com 800-297-6652
Dakota Stieber dakota@americanreceivable.com 512-339-5112
