Business Finance Expert Series: “Comparing Factoring to Other Financing Options”
There are a number of financial options in the market and you
need to analyze each in detail to determine which suits you the
best. A business can be financed with help from private
investors, lenders and financial institutions depending on your needs and
Credit Lines: In this the lender is actually a bank. The bank
redit lines to ( h
fill the temporary shortages of business like inventories,
receivables etc. These shortages are mostly due to the time
difference between the payouts and the collections. Unlike
factoring, financing through credit line requires a good
credibility record along with the collateral. Banks also require
business owners to maintain the obligatory balance of funds in
Short-term Loans: As the name suggests these are the loans that
are sought for term of a year or less and are generally secured.
They are taken to meet expenses like insurance or to cash over
the discounts offered by the supplier and are mostly paid back
in lump sum at the maturity.
Asset-Based Loans: Similar to factoring, asset-based loans are
raised on current assets like inventory or accounts receivables ( http://www.hjventures.com/factoring/accounts-receivables.html
) . However its ambit goes wider to include varied current
assets while in factoring it is limited to account receivables.
The lender has a security in the assets of a company and are
mostly sought to meet the working capital needs.
Contract Financing: In this kind of financing funds are advanced
in accordance with the work performed till date. Criteria on
which finance are provided under contract financing is the
credibility of business to complete a contract and its ability
to perform. Under this contracts are used as collateral to get
When it is difficult to obtain finance through banks factoring
is a promising option. The method also relieves small companies
of the expenses involved with collection of receivables. It is
not a one-time transaction and is generally provided on a
Howard Schwartz is a partner in several business strategy
groups, including HJ Ventures International, Inc. Howard has
worked with hundreds of entrepreneurs worldwide with a focus on
writing Business Plans for companies interested in raising
capital from Venture Funds and Angel Investors. Howard’s
business plans have secured several million dollars in funding.