Factoring is the selling of a company s invoices to a factoring company or factor in order to increase cash flow and provide working capital. As work or services are provided to a creditworthy customer, the factor advances funds (usually around 80% of the invoice) when the invoice is issued. When the invoice is paid 30, 45, 60, etc. days later, the remaining funds are paid less a small transaction fee.With asset based financing, working capital and term loans are secured by accounts receivable, inventory, machinery, equipment, and/or real estate. A company s financial statements are usually analyzed as in traditional lending, but it is less costly than factoring. Both factoring and asset based financing are more costly than traditional bank financing but are available to companies with creditworthy clients that may not qualify for bank loans. Hope this helps!
Factoring is as follows:Imagine this: say you have sold $10000 of widgets to retailer X, but you have them on net 30 so you won t see the money for 30 days. However, you need money NOW. You can call up a factor company who will offer to buy that $10000 receivables for a discount. Say, $8500. You lose $1500, but you get the money NOW. They make the $1500 by investing the $8500 now and make it in 30 days. (That s just an example, actual numbers will be different)As for asset based lending, that s basically lending on what the business OWNS vs. the business OWNER. Unless your business has significant assets, doubt asset based lending would help. See if there are special government loans that you qualify for.
Asset based lending is where a finance company will lend you money based upon your accounts receivable balance (take a lien on A/R). Generally a company will look at your receivables (as well as some other financial information) and develop an availability (what they would be willing to lend you). This is more expensive than a traditional bank loan but less expensive than actually factoring. A factor actually purchases your receivables (rather than taking a lien on them like they would in ABL). Factoring is generally pretty expensive. Depending on the type business you re in and what geograpic area you re in there are tons of companies that do these types of transactions. A place to start looking would be ABF Journal or look up asset based lending companies on line. Good luck.
