Typically small businesses can grind out a small line of credit from their bank. Let’s assume you have a $40,000 line of credit with your bank. You have a solid long-standing working relationship with your bank and you can finally see that your company is positioned for growth, but this $40k line is simply not going to get the job done.! You need more like $100,000, in fact the more money you have the more profit you could make. What can you do?
Your fastest best solution is to get an advance against your receivables know as invoice factoring, PO financing, or invoice financing. An experienced factor can have you funded within the week, can cooperate with your banker and facilitate a subordination agreement thus allowing you to maximize your dollars to grow your business. Subordination enables your company to take on both a bank line of credit and a factoring line of credit.
A factoring company can advance you up to 80% of the gross value of your invoices thus providing new capital to take on new orders or jobs, fund payroll on time, and buy new materials or services to take on new orders.
Factors are often able to finance your business when a bank turns you down. They are not concerned with your personal or business credit but primarily on the credit of your business customers. Bank and factors typically will work together. While a bank has limited flexibility based on their regulators they cannot provide the additional funds to a business but they do want to keep the depository relationship. A factor is not concerned with the deposits, not a bank; they wish to provide a healthy working relationship with the bank for future referrals. In time, once a company’s cash flow matures it will be able to qualify and request a larger line of credit from the bank.
Factors fund advances directly against your existing accounts receivables or purchase orders for that business to obtain immediate cash payment for business operations. They want to get you the working capital your company needs now to grow your business while business is good.