INVOICE FACTORING COSTS COMPARED TO A SMALL BUSINESS LOAN

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Any time a small company is looking for short term financing, it usually has quite a number of options available to it. The options will normally depend on the industry that the business is operating in, the assets that it holds, its credit history and the number of years for which it has been in operation. The newer companies operating in industries that enjoy high profit and thus high growth rates have the option of venture capital. Companies that have been well established and have been operating for a long while can easily access a bank loan provided they have good credit history.

For small businesses that have only been operating for a short time, have very few assets and do not enjoy a very strong credit history, accessing credit might prove to be a bit difficult. It is quite hard for them to get financing form both private investors and the commercial banks. Even the businesses with a very good credit score find it hard to get loans considering the fact that they might have been in operation for a short time and they probably have very few assets in their names. This begs the question, how then is such a business to thrive in this harsh and competitive business environment.

A very good option available to such businesses is invoice factoring.  The requirements to get this kind of financing are not very strict and thus it is very easy to access. The business will only be required to prove that it has good customers who normally pay on time and to also prove that it does not have a large number of outstanding invoices. Invoice factoring costs are also quite low thus the business will be able to easily afford it. The business will simply get into an agreement with a financial institution where the institution will agree to pay them for their invoices once the invoice is issued. The financial institution will then collect its money from the customer when the invoice falls due.

Compared to the process of getting a small business loan, invoice factoring is much easier. The requirements are not many, the process is less strict and the invoice factoring costs are quite low compared to those of getting a small business loan. This is definitely an option that a small business struggling with cash flow problems should go for. It is a sure way of maintaining liquidity in the business.

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