A lot of small business owners immediately think about their banks when they need additional funding. But banks are – at best – a toss-coin proposition, because they’re just as likely to reject a loan application as approve of it. And that’s why small business factoring invoice funding has become so popular in recent years.
Banks Are Not All Too Willing
According to the most recent news released last February 15, 2015, big banks only approved 21.3 percent of small business loan applications in January 2015. And that small approval rating is actually an improvement from the previous month, which was only 21.1 percent.
Small banks are more generous, but even they tend to reject the loan applications of many small businesses. According the latest data, in January 2015 small banks approved only 49.6 percent of small business loan applications, and that’s down from the 49.7 percent approval rating of the previous month.
How Factors are Helping Small Business
Factors tend to have higher approval ratings because they don’t look at your credit history or collateral. What’s more important to them is the credit of your customers. So if you have reliable customers who tend to pay in 30 or 60 days, you can get the factoring funding you need. And since it doesn’t require a lot of paperwork, you will know the status of your application in just a few days, instead of having to wait weeks.
Fast Working Capital through Factoring
The emphasis on time is part of the benefits of factoring. You get about 80% of the value of the small business factoring invoice right away, instead of having to wait 30 or more days to get paid. When you have immediate needs for payroll, utilities, or supplies, this fast turnaround allows you more breathing room.
With factoring, the money allows you to stay afloat or even fuel your growth. You don’t have to worry about having enough money to cover an order, because the cash advance you get can cover your needs sufficiently.
Factors also handle your collection for you. They’re the ones that your customers pay directly. When your customer pays in full, the rest of the money is forwarded to you after the factor has deducted its fees.
While this may be of some concern when your customers need direct communications with you, for the most part you’re alright as long as you get a factor with a long history in your industry and a reputation for courteous and professional collection process. An experienced factor will know the best way to notify your customers about payments, and they can be very polite so your business relationships aren’t affected.
Also, since factors investigate the credit of your customers, you can use them to screen out potential risks among your new customers. If your factor doesn’t think your new customer will pay in full and on time, you can avoid them as they may be too much of a bother for your business. With small business factoring invoice funding, you can concentrate on your business and have enough working capital to boot.