What are the Key Differences Between Bank Loans and Factoring?
Bank loans and factoring services differ in many ways. One of the key differences is whose credit-worthiness is at issue.
If you go to the bank to get a loan, the bank is making a decision based on your creditworthiness and your debt ratio. But in factoring, you and your company are not really the issue. Rather, the organization that owes you the receivable will be the primary focus of the factor’s review.
Wikipedia actually has a good discussion of the key differences between a bank loan and factoring receivables:
Factors make funds available, even when banks would not do so, because factors focus first on the credit worthiness of the debtor, the party who is obligated to pay the invoices for goods or services delivered by the seller. In contrast, the fundamental emphasis in a bank lending relationship is on the creditworthiness of the small firm, not that of its customers.
Sometimes you just don’t want to have to deal with a bank. Too cumbersome, too slow, too many questions you’d rather not have to answer. Factoring can be a godsend because your company is not forced under a microscope in the same way that it would be with a bank loan application.
January 25th, 2008 at 10:18 pm
[…] Here’s an interesting post I found today.Have a look for your self, Here’s an excerpt, please read the full story at the blogToo cumbersome, too slow, too many questions you’d rather not have to answer. Factoring can be a godsend because your company is not forced under a microscope in the same way that it would be with a bank loan application. […]