Does your business need a line of credit?

A line of credit is a convenient way to manage finances in a business. The money is available to use, but it is not racking up interest when it is not being tapped into. This is a good way to finance your business without adding to your businesses fixed expenses.

The down side of a line of credit is that it is issued by a bank, and currently banks are very tight with their lending practices. This means that start-ups, young businesses that have not established a credit history or established businesses with blemishes on their credit history might not be able to receive a line of credit from a bank. Or any other type of traditional funding for that matter.

However there is a less traditional way to receive funding that is not completely dependent on your credit score. This form of funding is actually more concerned with the credit of your customers.

It is called “factoring” and it functions a lot like a line of credit except your customers pay the bill. Factoring is essentially barrowing against the money owed to you in the form of accounts receivables. You invoice a client, the factor pays you today (rather than in 30 days) and your client pays the factor directly. This affectively taps into your receivables like a line of credit, with a key difference being, instead of assuming debt you are simply getting a cash advance on money you have already earned. This means that it is impossible to ‘get in over your head’ in debt in a factoring arrangement, because you never incur any.

Factoring is a great option for businesses that have gotten turn way from traditional banks as it provides the much needed capital and, because factoring is a lending arrangement, it will help build a credit history. This means that factoring allows a business to get the money it needs now, and also provides the basis to attain traditional loans in the future.

In addition, factoring does not have a credit limit of any kind like a line of credit does. With a line of credit your business can outgrow your credit limit, but with factoring the amount of financing grows with your business. 

For more information about factoring call (888) 250-5537