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Commercial Loan vs. Invoice Factoring

How is invoice factoring different than a commercial loan?

Simple: It’s not a loan and does not show up on your balance sheet as debt.

Factoring is the preferred non-loan alternative to a traditional commercial loan from a bank, and a great way to immediately raise cash for any business purpose. Here are a few notable comparisons:

Businesses Funded

Invoice Factoring Commercial Loan
Fast Growth YES NO
Start-ups YES NO
Profitable with no capital YES NO
Financial losses YES NO
Seasonal YES NO

Program Features

Unlimited A/R Funding YES NO
No financial covenants YES NO
Advances up to 98% YES NO
Free credit checks YES NO
A/R management YES NO

Approval Process

Financial statements needed NO YES
Dependent on personal credit NO YES
Must provide 3 years tax records NO YES
Lengthy approval process NO YES
Denied for IRS Problems – Tax liens NO YES

 

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Is Invoice Factoring a type of loan?  Absolutely not.

Even though accounts receivable factoring is often referred to as “factoring loans”, it is a financial transaction between the business seeking funds and factoring companies, but no bank. Accounts Receivable Factoring (Invoice Factoring) is when a company, like Charter Capital, purchases your accounts receivable invoices at a discount and provides you with immediate cash.

Factoring is a great non-loan alternative to traditional bank financing and can gives your business quick access to cash for any business need.  With the use of Accounts Receivable Factoring, your sales (accounts receivable or open invoices) are “cash in the bank.”  Funding is immediate and unlimited, mainly driven by your customers’ demand for your goods of services.

Accounts Receivable Factoring Companies are a great alternative to a commercial loan for business financing

As an alternative source of business financing, invoice factoring eliminates many of the difficult-to-meet criteria that companies must face in order to get a commercial loan. If you can get a loan or line of credit in today’s tight banking market, what’s going to happen after you’ve depleted those funds? You will still have to wait for the invoices to be paid. The biggest problem with a traditional bank loan  is that there is a maximum credit limit. Whereas Charter Capital provides no-loan cash based on the quality and liquidity of your assets (your accounts receivable). Because each account is evaluated individually, Charter Capital has much more flexibility than a Bank when it comes to keeping up with an increase in sales.