When a business owner finds out that they do not qualify for traditional bank loans, they may wonder what they can qualify for. If you find yourself in this predicament, you should consider asset-based lending or factoring. However, before you start the application process on either avenue, you should learn the difference between the two.
If you’re in a time-sensitive situation and you need money right away, factoring may be your better option. When it comes to factoring, the only requirement is to verify your invoice accounts. Once that is taken care of, the factor may send you the money you need within a few days.
On the other hand, when it comes to asset-based lending, it’s much more complicated. In this type of funding request, you’ll have to verify the value of your assets before you can be approved by a lender. This can take at least several days- and in some cases, much longer.
Typically, if a business owner values their privacy, they’ll go with asset-based lending instead of factoring because, in factoring, the factor is going to contact your clients to verify accounts.
While both methods of financing involve risk, factoring involves more risk because it’s given to growing businesses or new start-ups.
Credit & Collateral
A business owner with bad credit is more likely to get approval through factoring because it doesn’t involve their credit score and only requires invoices from the business. Asset-based loans involve the assets of the business.
Both forms of financing have fees and interest associated with them. Typically, factoring charges interest every 30 days, while asset-based lending has an APR averaging between 7-15%.
Taking the time to become familiar with the similarities and differences between the two can help you decide which is best for your business. Contact Capital Finance Partners when you are ready to make the move and get the funding you need for your business.