Well for starters, if you have ever received a small business loan then you know small business loans require a lot of paper work. Small business loans also require you to submit paperwork out the wazooo…
This is why many business owners are turning to factoring invoices as a stronger solution. Simply put there is not as much red tape, and the contracts for lending can be as short as 30 days.
Factoring Invoices has always been a financial method to raise capital. Cash on hand allows businesses to expand, market, put on new employees, take advantage of supplier discounts, or just manage overhead better.
Additionally, credit is becoming more difficult to get for small businesses without years of financials or vendor references. Therefore factoring is a way to quickly raise cash for working capital needs.
As mentioned above, getting a bank loan can be difficult and take months. As opposed to factoring in which you can have funds within 2-3 days.
Approval for bank loans for small businesses is difficult to come by, as loan requirements get stiffer and stiffer in the post- credit crisis world. Bank loans also require application fees, lengthy application procedures, and lots of paperwork and preparation. And don’t forget the interest on a bank loan.
That’s right, a large benefit of factoring vs. a bank loan is that with factoring you do not add debt to your company. Factoring established a credit line against your incoming sales. A bank line establishes a credit line against you, your business and its assets.
Invoice factoring gets your business cash fast, without the paperwork and debt, this is why it is a growing finical tool for small business.