Bank loan or factoring?

In the search for alternative sources of financing for current expenses, past liabilities or future investments, companies often turn to loans of some kind: bank credit or factoring?

Both bank loans and factoring are alternative sources of corporate financing, which enable companies to deal with long invoice payment periods and late payments, significantly improving their financial liquidity and avoiding payment stoppages.

What are both services and which one to choose – factoring or bank loan- to improve cash flow within your company?

Bank loans are the most common form of business financing. Most micro, small and medium-sized enterprises make use of this source of financing to cover the ongoing costs of running their business. Companies can take out different types of loans, depending on the purpose they have for the funds raised.

On the one hand, there is the investment loan, whose main purpose is to develop the company in order to obtain greater income in the future. Then again, there is the specific loan, which differs from the previous one in the need to use the funds for a predetermined purpose. Companies can also apply for a revolving credit or a short-term loan in the form of an overdraft in their current account. Bank loans are easily accessible in the midst of the current economic situation in each country and, why not say it, in the world.

Factoring is a financial service slightly different from bank loans. In this scenario, the entrepreneur does not borrow money from the bank, but sells his invoices receivable to the factoring company, which first pays the funds to the invoicee, charging the mutually agreed commission, and then expects payment directly from the issuer of the customer’s invoice receivable.

Today, the factoring market turnover is growing steadily. Companies have no need to wait for the reimbursement of a large amount due on their invoices receivable. Moreover, in many cases, due to their financial obligations, they do not have much time to maneuver. In this case, factoring is the best alternative, as it allows them to obtain funds quickly and easily.

What conditions must a businessman meet to receive a bank loan and what conditions must be met to obtain factoring? 

In this sense, the two products differ significantly from each other, and this difference defines to some extent the target group for both products.

While before granting a loan, the bank verifies the history of a given company, its turnover, age and collateral, such as real estate and others; factoring is based on the company’s reliability. Its financing service is available from the first day of operation, i.e., it offers the entrepreneur the money he has already earned.

Are you looking for an international factoring company that will allow you to obtain liquidity to expand your business?

Mutuo Capital complements local factoring solutions and advances your company’s collections.

Find out more about the exact process of International Factoring! Contact us.