LOCs vs Factoring
The main difference between LOCs (Lines of Credit) and Factoring is the purpose of the financing. LOCs are mainly used to provide long-term financing for things like working capital, while Factoring is used to convert accounts receivable into short-term financing.
LOCs usually require a certain amount of collateral to be set up to secure against the value, while Factoring does not require collateral. With LOCs, borrowers can draw funds as needed, up to the maximum approved amount, while with Factoring, the borrower only receives the amount of the invoice, but that money is debt free unlike with the LOC for which the money must be repaid.
LOCs can have lower interest rates and fees than Factoring, but with an experienced Factoring Consultant representing your business, these Factoring fees are often dramatically reduced and Factoring is typically more flexible to be used in situations where LOCs are not available. Ultimately, the decision of which financing option to use depends on the borrower’s specific needs and financial situation.
What makes factoring a better choice for your business?
If your business is doing B2B sales on terms, such as Net 30 as an example, Factoring is a great alternative to using a line of credit (LOC) to finance business operations because it provides businesses with faster access to funding. Unlike an LOC, which requires businesses to wait for approval and to pay back the money over time, factoring allows businesses to receive funds almost immediately, and without incurring any debt to the business. Factoring also provides more flexibility in terms of repayment, as businesses can choose when and how much to pay back, depending on their current cash flow. Additionally, there are no restrictions on the types of invoices that can be factored, so businesses can use it to finance a variety of expenses, making it a more versatile financing option than an LOC.
Moreover, depending on certain key factors when applying to the bank, you might find that you business does not qualify for an LOC, or any type of Business Loan product for that matter, without pledging a significant asset, such as the business owner’s home as an example, as security against the funding’s potential for loss. With Invoice Financing setup through a Factoring program, the lender does not incur any debt because the value funded is already secured by the invoice of money already owed to the business for sales made that have not yet been paid for. This relieves a lot of pressure against the threat of potential loss that an LOC or other business loan might have, thereby removing many barriers to funding through the right Factoring program that the LOC cannot look past.
A great example is a startup business.
For more information and to hire an experienced Factoring Consultant, contact us at Rocket Business Finance today.
At Rocket Business Finance, we provide experienced Factoring Consultants who can help you understand and get the most out of your factoring services. Our team of experts will assist you in understanding the details of the process, and answer any questions you may have. Whether you are just starting out, or are an experienced business owner, our team can help you make the most of your factoring services, help you identify the right deal and Factor to work with, and most importantly, save you money.
Our Clients save an average of $70,000 in fees they would have paid without having had our representation to back them up.
Contact us today to learn more and to hire an experienced Factoring Consultant to represent your Business against the Big Banks. We offer Free, No Obligation, Consultations and charge no service fees unless we find you the right deal. Fill out our Business Questionnaire Form to get started today.