How to Get Business Invoice Factoring
Explore funding options to support your business growth.
No matter which industry you’re in, one of the biggest challenges for any business owner is securing access to more capital to expand your business. And with the state of the market right now, it might get even trickier to get a traditional loan in the foreseeable future.
If you happen to face this dilemma, don’t fret–there are many ways for you to get money to grow and invest in your business. In this article, we’d like to introduce you to what’s called a factoring loan, or invoice factoring. Not sure what that is? That’s okay–keep on reading, and we’ll break it down for you.
What is Business Invoice Factoring?
According to the Intrepid Private Capital Group, a factoring loan is a type of loan that uses “unpaid customer invoices as collateral.” As a business owner, you’ll still retain ownership of the unpaid invoices, but if you fail to pay back the loan then the lender can take ownership of them. It’s a unique type of loan, and particularly valuable if your business accepts payment after the delivery of the service or product. And it could provide a way to access capital if you’ve been denied other types of loans.
How Does Invoice Factoring Work for Small Businesses?
Even if you’re a small business, the principle for invoice factoring or factoring loans is still the same, as long as you have unpaid customer invoices that can serve as collateral, instead of another asset like real estate. If your credit isn’t stellar or you don’t have another asset for collateral, you might be denied a traditional loan by the bank. But, if your customer has unpaid invoices for a recent service or product, factoring loans could provide a fast avenue to capital.
Is Invoice Factoring Right for Your Small Business?
Now that you have a handle on what invoice factoring is, you’re probably wondering if it’s a good idea for your business. Even though putting up invoices as collateral for money may sound simple in principle, in practice, it’s a little bit more complicated. Read on to learn why, and if invoice factoring makes sense for your business.
Pros and Cons
+) Easy approval. Banks and other lenders offering you a factoring loan care about the value of your unpaid invoices, not your credit rating or how much gold is under your floorboards. As long as you have trustworthy customers, you stand a fair chance of getting a factoring loan.
+) No collateral. This is why it’s easier to get approved for invoice factoring–you need only to have invoices that need to be paid.
+) Quick cash. Not only is the capital from the factoring quick, but you’ll also be able to keep longer-paying customers while retaining cash flow to expand your business.
-) Fees. Every lender is different, but some factoring loans can be expensive. They may be full of hidden fees, like application and processing fees, and high annual percentage rates. Be sure you’ve read up on all of these before you officially accept a loan.
-) Only for invoice business. Naturally, you need invoices to apply for a factoring loan. If your business sells directly to consumers, this type of loan won’t be an option.
-) Customers with bad credit or finances could be problematic. The company whose invoices you use as collateral must be dubbed trustworthy by your lender. After all, if you default on the loan or miss a payment, those invoices will be seized. If the customer has a history of missing payments or doesn’t have the adequate cash flow to fulfill the invoices, the lender could back out. Or if the invoiced company fails to pay, you may be forced to buy it back at a greater value.
-) Loss of control. Should you miss a payment, the factoring loan lender may collect the cash from the invoice directly from the customer. Make sure the lender is fair and honest if it comes to this point.
Invoice Factoring vs Invoice Financing
They both sound similar, but they’re a little different. In both, you put up invoices as collateral for capital; in factoring, that capital is given to you immediately, and in financing, it’s given as a line of credit. In financing, you’ll be responsible for collecting the invoice payment while in factoring, that usually falls upon the lender. They’re fairly similar in principle, but one’s structure may appeal to you better.
Other Types of Small Business Loans
Depending on your business structure or credit rating, you may qualify for another type of loan that better suits your needs. Here are eleven of them for you to check out. They range from federal Small Business Administration loans to business credit lines or simple term loans. If you’re uncomfortable offering invoices as collateral, do a bit of research and consider these other options.
How Can I Get A Small Business Factoring Loan?
You understand what a factoring loan is; now we’ll break down the steps to getting a factoring loan and quick capital afterward. Every lender for a factoring loan may have different steps and processes, but overall they’re similar. First, you’ll need to have the invoices–those will be crucial in getting you the loan, as well as determining the amount you’ll be able to borrow. You will also be asked to submit identification (usually a driver’s license) as well as business financial and credit statements. Most lenders allow you to apply and submit these documents online and use accounting software to provide a decision quickly.
Fundid Capital makes the whole process especially easy. You can apply for a loan directly on our website, without any application or processing fees. You’ll be able to evaluate the decision we offer you with one of our financial advisors. Should you choose to accept, you can receive the money in under twenty-four hours, wired directly into your business account, and put it to work the next morning!
How It Works
Apply – first, we’ll ask you some simple questions to get a better idea of how we can help you. For instance, what sort of loan you’re looking for, what term length, etc.
Advisor Meeting – after the brief questionnaire and application is submitted, a Fundid Advisor will reach out with the funding options they’ve curated. They’ll walk you through your options and discuss your business goals so you can determine which option is best.
Choose – select a capital option that’s best for your small business
Fund – get your capital in as little as 24 hours, and put it to work the next day
How Fundid Capital is Different
Fundid Capital is risk-free. We do not charge any application or service fees, and we don’t run any credit checks. You won’t have any credit damage or inquiries and will have zero obligations. We also weigh several capital options according to your small business goals and often return with multiple offers, so you have several options.
We’re also not a big, traditional Wall Street bank. Fundid Capital is a proud small business. We understand what it’s like to start out from scratch and build a business. We know what it takes to grow, and we’d like to offer our help to you. We have a team of real, human advisors that are ready to guide you through the funding process, which we understand can sometimes be intimidating.
We’re Here to Help You with Small Business Invoice Factoring
If your business operates transactions with invoices, and you’re in need of quick cash but don’t want to deal with the big banks, Fundid Capital can help you with small business invoice factoring. Need funding to grow your business? Learn more about Fundid Capital to find out how you can get capital to grow faster.
Fundid is redefining how small businesses understand and access capital.