As the economy thrives, we’re seeing more entrepreneurs start businesses, and others enter a new and accelerated phase of growth. However, not every business owner is in a position to borrow funds via a traditional bank loan.
When this happens, these business owners may need to look to alternative sources of funding like factoring or asset-based lending. Before you consider one of these options, it’s important to understand the differences. Keep reading to learn more.
The Approval Time
Factoring is a process that takes the invoices into account when determining the amount that a business can be loaned. The lender will assess your cash flow using these invoices and can usually render a decision in a matter of a few days.
With asset-based lending, you will need to verify all of your assets and have all of them appraised before a lender will agree to any type of loan. The assets will need to be worth more than the total of the loan, and this can limit the amount available to the borrower and increase the time it takes to receive funds.
The Cost of the Money and Risk Involved
This is a relatively important variable when deciding on the type of loan to go with. As a rule of thumb, factoring can be more expensive than asset-based lending because of the lack of collateral. Asset-based lending is secured by concrete items that can be sold for more than the cost of the loan.
This also offsets some of the risks, as asset-based lending isn’t secured by promises of future payments or cash flow. Rather, it’s secured by concrete collateral that’s already in the possession of the business owner.
The Information Required
If a business owner is concerned with sharing the source of their accounts, asset-based lending may be the better option. Using assets to secure a loan is fairly straightforward and doesn’t require a deep dive into the inner workings of the business.
So, Which Is Right for You?
Borrowing funds for your business is one of the most stressful and exciting things any business owner can go through. It’s important to choose a company you can trust. For more information, contact the experts at Nations Capital Financing today!
