Business Finance Expert Series: “comparing Factoring to Other Financing Options”

Varied Commercial Financial Options

Credit Lines: In this the lender is actually a bank. The bank gives credit lines to  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 their accounts.

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 short-term loans.

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 contractual basis.

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