Invoice Factoring versus Asset Based Loans
We all hit hard times and need instant cash. Fast growth, interest rate rises, outstanding invoices and replacing equipment all contribute to the growing need for instant cash. It can all come at once. You may even be a new business. It does not matter why or how – it is usually circumstances beyond your control. May be it is time to look at alternatives for short-term financing.
Short-term Loans or Invoice Factoring?
Short-term loans are an excellent solution – they get you out of trouble fast and it gives your credit rating a positive boost. It shows lenders you capacity to pay a loan off over the long-term.
Invoice factoring and asset based loans are a preferable solution to the cash you need. May be you are just starting your company up and need working capital in a hurry. There are options. And, these include using an invoice factoring service or looking at an asset based loan.
The problem with long-term bank loans are they can take too long to apply for and by the time the financing comes through the opportunity has already gone. Using invoice factoring or getting an asset based loan can get you cash fast.
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Asset Based Loans
Interest rates for asset based loans are negotiable and this is because of the rise in competition that the lenders have. An asset based lender checks into the liquidity of the assets you are using to back your loan. You will also need to provide evidence of a good credit history for the time you have been in business. You need to prove your reliability for an asset based loan.
Factoring Accounts Receivable
The good thing about factoring finance is the lender looks at the credit history of your clients. If you want to factor your invoices then you must produce copies of the invoices and send them to the factoring company.
Next, the lender will look at the credit history of your clients and decide if they want to recoup the invoice amount at the time it comes due. Once the factoring company completes this phase they will send a percentage of the cash you are owed. Now the lender recovers the invoice amount. The final stage is you receive the balance owing on the invoice from the lender less a fee for their services.
It will depend on how quickly you need cash flow on whether an asset based loan or invoice factoring is the best option for you. If time is short invoice factoring or an asset based loan may just be the answer you need.
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