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Lenders vs. Banks

default author logoBy Kevin Stapleton

In this economy it is becoming increasingly common for companies to seek out more working capital in order to help grow and run their businesses. When looking to find the best factoring option for you, it is important to weigh the pros and cons between a bank facility and a non-bank lender (factor).

When you initially look into your options, you may find that factors are more expensive in the upfront. However, going through a factor will give you much more opportunity than going through a bank, and in the end, many companies find that costs end up being equal.

While banks will just look at the credit worthiness of your company, factors are able to be flexible enough to take your company’s eligible collateral, business model and business potential into consideration as well. This way inventory and equipment can be looked at instead of just the upfront value of your company, as well as a host of other factors.

Bank loans generally come in the form of one lump sum, which can generate interest if not utilized – factoring can provide you with a steady flow of funds that you can use as capital to grow your business as the need for capital arises.

Where bank lines generally have a cap or limit that once it is reached – the ability to grow is no longer in the company’s control, factoring provides a more flexible solution, which can be customized to meet your company’s needs.

As far as factoring goes, generally, the greater the sales, the more funds become available to the company. However, with a bank facility, you get one lump sum regardless of the sales volume. If a company requires an increase in the line of credit, they must re-apply.

When you deal with a bank you never get to see the higher ups that decide how much of a loan you get and when you get it. Factoring is a much more hands-on solution which gives you the ability to meet directly with the person who will decide which plan is right for you.

In the current credit climate, banks are regulated heavily and often have restrictive lending requirements relating to cash flow, profitability, equity, and years in business. This makes it much harder to obtain a bank loan, whereas factoring companies have very few restrictions. A factor can decide to work with a start-up, a company that has gone through hard times or a very successful company as long as they have verifiable collateral along with creditworthy customer accounts.

When choosing your best option for working capital, it is important to weigh your options and pick the right solution to meet your needs.