Where do you turn if you are a new or a small business in need of working capital but a bank has turned you down? Banks usually turn down loans for one of two reasons – the business does not have any credit history or hasn’t been in business long enough to have an established credit history. In fact, banks often require a 2-3 year track record of earnings to qualify for a loan. Working, instead, with a factoring company if you are a new or small business is often a great alternative.
Factoring companies don’t look at either of those criteria. Whether you are new or old, they look at the creditworthiness of your customers, not you or your business. To be eligible for invoice factoring all that need is unpaid accounts receivables and credit-worthy commercial clients. Your business sells its unpaid invoices to the factoring company. Assuming the client has good credit, your business will receive cash sooner than if you collected the money on your own, often in less than 24 hours.
As an added benefit, some factoring companies will perform credit checks on your customers and provide this information to you for no cost. This will help you to evaluate your customer’s history of paying their bills allowing you to decide if they are slow paying this time or EVERY time. Knowing this information can help you decide if you want to keep working with them in the future.
Though factoring is designed to be an option to help new businesses get through temporary challenges, maintaining day-to-day cash flow can help you keep growing toward the day when you are a better fit within the bank’s criteria.
If you have other questions about how factoring can help new businesses, give us a call (865-670-2345) or schedule a meeting.Back to blog