Why Is Invoice Factoring Financing Better Than A Business Loan
If you find yourself struggling to manage your cashflow due to a mismatch between your credit line and revenue, invoice factor may be an option for you. As an alternative form of financing, it has several benefits that make it the desired choice for business owners.
Unlike regular loans from banks or other institutions, payments are not made up front. Rather than giving the funds away and hoping you'll be able to pay them back in full at some point in the future, the investor assumes all risk. This also means that should something happen with your company (e.g. loss of sales or inability to pay back the loan), they will not be obliged to provide any sort of remedy.
Typically, a business loan is the first and last avenue for businesses (once it's paid off) as it's secured by assets such as company stock or inventory. If there is a business loan in place, the lender has immediate access to those assets and can seize them at any time, should you not be able to pay the outstanding amount. This gives them 'priority' on your assets. In order to get financing for your business, there are limits on how much you can owe, but that won't be an issue with an invoice factor because you aren't borrowing from one person or one entity.
A business loan is a really good way to get working capital. It will give you access to working capital while ensuring that all future invoices and sales are paid in full. However, it will only allow you to purchase inventory or fund the next stage of your growing company; it's not intended for the purpose of paying down debt or building cash flow for your business.
An invoice factoring arrangement works very differently from a bank loan in terms of who has priority on which account (your account or theirs). If you have outstanding debt on a line of credit from an institution such as a bank, they hold 100% priority on that account—they can take money out of your account without consulting you and giving you prior notification.
With an invoice factoring arrangement, you are only borrowing money from a third-party investor based on the amount of your outstanding invoices. This means you will have complete control over your finances, and more importantly your business assets. If the amount you owe is more than you could ever repay, invoice factoring may be your best bet.
If you're struggling with too much debt or too little cashflow, an invoice factoring option is a great alternative to bank financing. You'll keep control of your business while getting access to the working capital you need to ensure it stays afloat.
Author Bio:
KYLE EVANS writes business articles for small and mid-sized businesses, focusing mainly on finance, controlling costs, and attracting talent. He is also a freelance business writer who has worked with a number of clients in the Non-Profit and Education sectors. Kyle's articles have been featured in publications such as The Huffington Post Guide to Going Green for Non-Profits, Small Business Trends, NC Spotlight Magazine for the State of North Carolina, and others. You can find more of his work on the websites below: www.smallbizthinktank.com & www.thetechstationllc.com . Find more information about invoice factor financing on Wikipedia at https://en.wikipedia.org/wiki/Factoring_(finance) .
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