Factoring: A Loan That Will Not Affect Business Credit

Factoring: A Loan That Will Not Affect Business CreditWhen it comes to starting a business, you often use your own money as startup capital. But sooner or later you’ll need additional funding, and that usually means having to take out a from a bank or using your credit card. But these methods of funding can really mess up your credit, especially when you have problems paying on time. That’s why you’ll need factoring: a loan that will not affect your credit.

How Loans Can Help your Credit

For the most part taking a loan can help your credit. Your credit score reflects your ability to pay back a loan. The higher your score is, the more likely it is that you’ll pay back a loan in full and on time. And that’s why banks often prefer borrowers with excellent credit.

You don’t get an excellent credit score if you’ve never had a loan in the past. That’s because you don’t have a history of paying a loan on time. By taking out a loan, you therefore give yourself the opportunity to prove that you can pay back what you borrow. So if you don’t borrow, you don’t prove anything. It’s ironic, but a millionaire who has always dealt in cash will probably have poor credit.

How Loans Can Hurt Your Credit

Loans, however, can be risky for your credit. For one, you can’t take out too many loans. All your loan applications are noted, and when you apply to many credit card companies, for example, then your credit will take a beating.

Then there’s also the problem of paying back a loan on time. Once this becomes a problem for you, your credit score will tank as well. And when that happens, you may no longer be able to get any more loans.

Factoring and Loans

In a way, factoring is a loan. You get money in advance and then you pay for that service. It’s like paying interest.

But at the same time, factoring has nothing to do with your credit. That’s why you can avail factoring even if you have poor credit. Factors give you advance money in exchange for your invoices, and in return it gets its fees once those invoices are paid in full.

But there’s no actual loan when you deal with a factor. After all, you’re not borrowing money – you just get your money in advance. And you don’t pay the factor. Your client does, which is why your client’s credit is evaluated and not yours. And because your credit doesn’t matter, there’s no inquiry of your credit. With no inquiry, there’s no effect on your credit.

Alternative Funding Sources

Of course, factoring is not your only alternative to expensive credit card cash advances and hard to get business loans. There are other ways in which you can get more funding for your company. But you will find factoring can help you in ways that other funding methods can’t. And you can be sure that your credit rating won’t be affected in any way. That’s the beauty of factoring: a loan that will not affect your credit.

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