2016-11-21 00:00:00Borrowing and LoansEnglishLearn what factoring is, how it is used in business, and the differences between it and traditional bank loans.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/03/Accountant-and-client-in-office-discussing-loan-options.jpghttps://quickbooks.intuit.com/ca/resources/borrowing/how-to-decide-if-you-should-use-factoring-instead-of-a-loan/How to Decide if You Should Use Factoring Instead of a Loan

How to Decide if You Should Use Factoring Instead of a Loan

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Factoring is a method of raising immediate cash financing for a business by treating invoices as collateral and selling them. The accounts receivable are sold to factoring companies at a discount, which generates working capital within 24 hours. Factoring is different from a bank loan in the following ways:

  • It is not debt. The business is selling accounts receivable.

  • There is no funding cap. As long as there are receivables to sell, cash can be generated.

  • Approval takes days, not weeks or months.

  • Approval is based on the client’s credit strength, not the business owner’s.

*Businesses at any stage are eligible, whereas startups have a very difficult time receiving bank funding.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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