The Advantages of Working Capital Factoring Lines

Most small business owners appreciate the value of working capital. Having the funds to pay for rent, for utilities, office supplies, and payroll is essential. Business owners also use their working capital to pay suppliers so that they can have the raw materials needed to create the products that their customers want. Without working capital, their operations cannot continue and their business suffers. And that’s why working capital factoring lines are crucial for many businesses today.

You have several ways of getting the working capital you need. But here are some of the main reasons why working capital lines may be your best option:

  1. You can borrow only the amount you need. When you have your own business and you need a working capital loan, you need to borrow a specific amount of money. So that means you have to make an accurate estimate as to how much you need. For example, if you borrow $100,000 and it turns out that you actually needed $120,000 as working capital, then you’ll have to take out another loan. This can put you in a bad strait since loan applications tend to take a long time and the need for working capital is usually urgent.

On the other hand, if you borrow $100,000 and it turns out you only need $70,000 then you’re paying interest on the $30,000 that you don’t need.

With a line of credit, you don’t have to worry about any of these. Your lender can give you, say, $200,000 line of credit and you can only get the amount you need at any given time, and they will just charge interest on the amount you use. So, even if you have a $200,000 line of credit, if you use $120,000, then you will only pay interest for this amount.

  1. There are no arbitrary limits to the working capital factoring line. You are limited only by your volume of sales. So that means if your accounts receivable have a value of $1 million, then you have a potential factoring line of $700,000 to $900,000 depending on your agreement with the factor.

In contrast, a bank line of credit has a ceiling, and you have to reapply if you want that ceiling raised because your current line of credit is unable to match your working capital needs.

  1. Applying for a factoring line is quick and easy. When you apply for a line of credit from a bank, the entire process can be interminable. This is not good, especially when you need working capital. And that’s if your application is approved. Too many banks nowadays seem to loan money only to those companies that seem not to need the money in the first place!

For factoring lines, the application and the setup can be very quick. A crucial requirement for working capital.

  1. The total fees you pay for the factoring services are much lower than what you have to pay in interest for credit card cash advances. Credit card companies can charge an outrageously high interest rate for the money you borrow.
  2. You don’t need a good credit to take advantage of factoring credit lines. This is in stark contrast to banks or credit card companies, which usually won’t provide a line of credit unless you have a high credit score.

So if you have some accounts receivable, you can deal with a factor and get your line of credit right away.