Several business owners consider asset based factoring as a preferred funding choice. Also referred to as asset-based lending, during economic uncertainty situations, asset based factoring has proved to be an excellent practical financing option. When there is a constraint in credit, and lending also becomes limited, paying extra for working capital is accepted by small as well as mid-sized business owners.
Is it any different from bank loans?
When a conventional bank loan is applied, the business’s credit worth is evaluated by the bank. The bank lends capital but it comes with a condition. The money that is lent to the business needs to be repaid and the borrower is pledged with the business assets to receive a loan. This is unlike asset based factoring when the capital/funding is approved based on the worthiness of the customers. Furthermore, the business incurs no debt that needs to be repaid.
How does factoring function?
When there is a sale of company invoices for immediate cash, it is known as factoring. In layman’s terms for a successful business to operate, adequate cash flow is essential. When there is strong cash flow, the businesses can overcome struggling over payroll, taxes, and other expenses. Hence, the operations and growth of the business remain intact without getting hampered.
Asset based factoring can render almost 80% of verified unpaid invoices within a day after getting submitted. In addition, the outstanding balance is also paid less a discount instantly upon receipt of payment from the customers.
Preferred mode of financing among startups
Asset based factoring is a preferred methodology particularly among startups, small and mid-sized businesses for liquidity financing. Furthermore, it is also favored by any business that is failing to get traditional financing methods. It is the easiest means to acquire immediate cash which is necessary for any business to operate smoothly without getting doomed from its weekly and monthly expenses.
Requirements for factoring applicants
The following mentioned are some of the requirements that every asset based applicant needs to fulfill.
- Clients are required to submit a standard application
- Information provided must have present accounts receivable list
- There must be a clear description of the entity to be factored
- Providing details of the customers or debtors
- All bank details must be provided
- There must be a statement declaring assets and liabilities
- Any additional contracts that need to be done
- Description of the business model of the client
- Signature of clients as the standard guarantee that is demanded by banks
- Explanation of the bad credit history by the client
An asset based factoring can help one understand the above-mentioned requirements to the applicants. They have the knowledge and understanding of the legal matters associated. It is the favored financing method among small and mid-sized business owners across the world. Even the startups prefer immediate cash flow via factoring. In today’s credit environment, more numbers of enterprises are considering asset-based factoring to ensure their businesses keep functioning and flourishing. The best part is that the whole funding process takes very little time, unlike traditional bank loans.