Many Toronto businesses today have realized that getting a loan from a bank is a truly excruciating process, and often the result can be a spectacular failure. But now alternatives such as Toronto accounts receivables factoring are beginning to look more and more attractive to many SMBs.
The Problem with Bank Loans
Trying to borrow money from a bank, especially in Canada, is a process that’s fraught with many challenges. One immediate problem is the comparatively limited number of funding sources. This is the reason why many Canadian companies are advised to seek financing from US banks and financial institutions. Many US financial institutions are searching for earning opportunities abroad, and Canada is an attractive option.
Yet borrowing from a bank is very difficult regardless of whether it’s in Canada or the US. Sometimes banks have rules that apply to your business in particular. For example, some banks today simply refuse to offer financing to restaurants. What’s worse is that this may be the reason for the refusal to finance your deli, even after the loan application process has gone on for months.
And the time needed for the loan application process can truly test your patience. Banks need to know a lot about your company before they decide to finance it. You have to explain who you are and why you and your company should be trusted. You need to demonstrate your understanding of the market by differentiating yourself from your competitors. You’ll need to explain how you intend to use the funding you will receive, and what your revenue expectations are. And the list goes on and on.
How Factoring is Different
In contrast, numerous Toronto accounts receivables factoring services have sprung up and they offer a better alternative than banks. Factoring is one of the more popular options. In this scenario, you exchange your account receivables for instant cash that’s about 80% of the value of your invoices. Once your customer pays the factor in full, the factor takes its fees and then gives you the rest of the payment.
With factoring, you don’t need months to see whether you will get the loan you need. Instead, you get an answer in a week, maybe less. What’s more, your chance of getting approved for financing is much higher.
The reason is simple. Factors don’t really need to understand the minute details of your business. They only need to determine the trustworthiness of your customers. So if your customers have good credit, then they will give you the funding you need.
The most obvious advantage of traditional loans is that they generally levy lower interest rates than what factors charge. But low interest rates don’t mean a thing when you can’t get the funding you need.
With Toronto accounts receivables factoring, you get your funding right away, and it can continue for months. And as the volume of your account receivables grow, your financing increases to meet your needs.