Can A Factoring Company Help My Business?

Can A Factoring Company Help My Business?

Blog articles discussing factoring companies, factoring loans, invoice factoring and all things related.

Most of the small business owners we speak to would love to be approved for a bank loan or partner up with the coveted “equity investor” and ride off into the sunset. The reality of it, however, is that very few small businesses qualify for traditional bank financing and do not meet the requirements equity investors look for.

There is a gap in expectations between what small business owners want and what private investors and banks want. What are they? Summarized below:

Small Business Owner – “I wish to become wealthy by using someone else’s money at a very low rate of interest and prefer not to personally guaranty the loan.”

Investor/Bank – “I want to lend money in a nearly risk free scenario and gain a handsome return on the capital invested.”

The end result is the “Golden Rule” or those the rule that states those with the gold make the rules. It is not uncommon to reach a stale mate after months of negotiations as a result of the gap created by these polar opposite ideals.

What we have found is that the conversation (if the business owner is looking to fund variable expenses) usually migrates to factoring company solutions or an asset based loan. Why? Because factoring companies provide easier access to capital and focus on your customer’s credit. Does that mean they aren’t concerned with their borrower? Not exactly. Both borrower credit and customer credit are important in the factoring companies eyes, but not to the same degree. If you sell on net 30 terms and invoice your customers, chances are you can obtain the funding you need with a factoring company.

The profile of an average business that is approved for factoring has some of the following challenging characteristics:

  • losses and/or negative equity
  • business owner not willing to provide a personal guaranty
  • start up or under two years in business
  • internal financial statements
  • contractors
  • tax liens or past due tax payments
  • contractors
  • poor record keeping

This is not a complete list, but shown to demonstrate the flexibility of factoring companies over traditional lenders. As your business grows, your factoring charges will decrease as the factor’s main interest is to grow with your business. We have some clients that choose to stay in their factoring relationship for the ease of use and minimal financial reporting requirements.

Factoring companies finance your operating capital needs, manage your accounts receivable and stay out of the way and let you run your business.

If you have questions regarding whether or not factoring is right for you, please call us for a free consultation 714-719-8966.

To your success!

Patrick Zazueta | Founder | Huntington Coast Capital, Inc.| 714-719-8966

Factoring Companies Help When Others Can’t

Factoring Companies Help When Others Can’t

Blog articles discussing factoring companies, factoring loans, invoice factoring and all things related.

As capital markets advisers and small business advocates, we are in communication with business owners on a daily basis. For small business owners, cash flow is critical. In a recent example, we spoke with a supplier of art frames and pieces. Their major account, Panda Restaurants, has been steadily increasing their orders and while this was a welcome arrangement, it was creating a cash flow problem for the small business owner.

The company had current accounts receivable between $10,000 and $25,000 per month – much too small for traditional banks to be interested. They specifically stated they were interested in a working capital line of credit versus a loan.

After a brief conversation, we introduced them to the perfect factoring company for their business. Factoring your accounts receivable, or invoice factoring as it is also referred to, is a buy/sell agreement and not a loan. The factor will “purchase” the invoice for a period typically up to 90 days. The client is able to take a cash advance on the face amount of the invoice. For example, if you have a $1,000 invoice out to a customer, the factoring company will advance 80% (more or less depending on the situation) allowing you to use $800 of that cash on day one. Once the $1,000 invoice is collected, the advance is repaid along with the $200 balance minus the factoring fees assessed.

Factoring companies have provided invoice factoring for over 100 years. It is the simplest way to cash quickly for your business capital financing needs. If your business could use a boost in capital to fund growth, give us a call.

To your success!

Patrick Zazueta | Founder
Huntington Coast Capital, Inc.
714-719-8966.