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Small Business Factoring and it companion Asset Based Lending will be in vogue, as companies look for working capital to sustain revenue growth going forward.

Our cable news media continually report on the stimulus plan, tax credits and other initiatives to incubate the economy; however the fact remains commercial banks are still a bit stingy with handing out new loans to small business owners even though recent reports show Big Banks loan approvals are up.

The Future of Small Business Factoring here again, and will again prove to be ta viable interim solution to combat the traditional banking and credit markets.  The time tested practice of factoring will promote top line revenue growth when traditional bank financing does not fit. frequently unavailable.

So what is Factoring?

Factoring is when a company sells its invoices and/or accounts receivables at a discount to a Funding Company for immediate cash.   Unlike a traditional bank that will take your accounts receivables, inventory and other assets as collateral and lend against these assets, an accounts receivable factoring company will purchase the invoices out-right.  To the business owner, the end result is the same, but from the outside looking in there are some advantages and disadvantages to both invoice factoring and traditional bank financing.

Invoice Factoring – Pros and Cons


Factors will pay immediately on approved invoices.

Business Owners incur no debt to be repaid.  Selling your invoice for cash is the same as offering your customer a discount to pay early.  You’re trading a quick payment discount for the convenience to have your cash now.

Factoring companies will encourage growth by providing additional working capital to grow.  Unlike a traditional bank that will require a business to re-apply for every lending increase.

Flexibility – as a business owner – it is your choice to factor or not factor specific invoices.


When compared solely on cost.  Factoring is a more expensive form of working capital than Commercial Banks.

Small business factoring has been and always will be a stepping stone or bridge to traditional bank financing.  Through periods of rapid growth – invoice factoring and asset based lending are proven alternatives to improve cash flow and return on equity.  What is rapid growth?  In the life-cycle of every business there are periods where a company’s growth rate exceeds its earnings – resulting in insufficient cash flow to manage the business.

When working with a traditional bank, earnings is a key component to any funding covenants agreement.  Get the ratio out of balance and your bank will restrict or worse revoke lending privileges.  Banks focus on the net value of the assets pledged to repay the loan and assign ratios that must be met.  Factoring companies and asset based lenders fund solely on cash flow and the strength of a company’s customer base.

In light of today’s economic uncertainty, many factoring companies have resurfaced as a preferred and viable funding alternative.  Factoring will again provide businesses a viable working capital cash gap solution.  It will remain to be seen how long it will take for traditional funding sources loosen the purse strings, however until that time accounts receivable factoring and asset based lending will provide business owners funding to support growth.

In summary, no one truly knows how long it will be before we see traditional banks lending again, but in the meantime commerce must continue to move forward.

Darren Grady has over 30 years of private business and funding experience, and has utilized Accounts Receivable Factoring and Asset Based Lending to grow two businesses in the initial start up phase.  For more information on Accounts Receivable Factoring, Asset Based Financing, as well as other funding companies and resources go to