I recently spoke again with Andrew Aquino, Executive Vice President of Bay View Funding about invoice factoring, and how it compares to traditional bank loans or lines of credit, and some of the newer forms of financing on the market today.
Firstly, he discussed the differences between invoice factoring and bank financing, telling me that bank financing can be useful, but not easy to obtain in certain situations. Banks look for businesses to be:
- Formed generally for a minimum of three years
- Able to provide historic consistent profits
This means that the bank will determine your ability to repay debt before deciding upon how much to offer you. This is great for a business with on-going profits and flat sales, but in certain circumstances this will not work. Such as:
- A business with a growth opportunity
- A startup with no history
- A company with research and development expenses just starting to generate revenues
With factoring, and specifically with Bay View Funding, none of that is a prequalification requirement.
- A business could have started a week ago and have issued their first invoice to a customer.
- A sudden sharp increase in sales would not be an issue as long as those sales are to a creditworthy customer.
- Historic losses will not necessarily disqualify a company, as long as there is a reason and the company is on an upward trend.
Andrew went on to address the increase in newer forms of financing, specifically companies that started off providing merchant credit card advances against the credit card sales of a business. They are repaid by taking a portion of the credit card receipts on an ongoing basis. Some are no longer looking at historic credit card sales, they provide financing for different types of criteria as long as the company is in business.
It can be extremely easy to obtain this type of financing, but Andrew explains there can be additional costs, which is fine as long as you are aware of them. Examine the structure of the loan, and be conscious of all the fees. Compare these fees to other forms of financing, such as accounts receivable funding.
In my next audio blog with Andrew we will look at some of the other warning signs to be aware of when it comes to the newer forms of financing available on the market today. While there are many legitimate new lenders on the market, keep a watch out and don’t get caught in a scammer’s net.