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What is
Factoring?
Why
Factor?
Choosing
a Factor
Cost
of Venture Factoring
Sample
Solution
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Why Factor?
What Companies
Use Factoring?
A Company May be
Un-Bankable:
A company
may not be bankable by traditional standards. A start-up,
which may be undercapitalized, may have a negative net worth
and a have a history of losses. But the company may also have
quality receivables which it can finance, thereby leveraging
those receivables. |
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A Young
Company May be Growing Fast:
Factoring is
custom-made for companies that are growing by leaps and
bounds. Often, a new company grows so fast that it quickly
outgrows a traditional line of credit. This makes it difficult
for the company to seize market opportunities that will help
it stay on its growth track. Using factoring, it is almost
impossible to outgrow a credit line. With factoring, the line
is based upon the amount of qualified receivables, and limited
only by the factor’s lending limit.
A Good
Way to Ensure Equity Retention:
Factoring
allows a company to finance without diluting equity. This, of
course is a critical issue to current
shareholders.
A Form of Credit
Protection:
Factoring enables you to pass off
the credit risk. This is referred to as limited-recourse
factoring.
A Bridge to Wall
Street:
Factoring can be a bridge to an equity
event or traditional credit facility. It can, in fact, help
you to delay an equity event as a method of retaining more
equity.
Taking Advantage of Supplier
Discounts:
A company can factor an invoice to
take advantage of a vendor discount. Over time, this could
amount to significant savings.
Cashing in on
International Receivables:
Many traditional
banks refuse to acknowledge that foreign receivables have
value. This is tremendously old-fashioned, considering the
fact that most viable companies now do at least some business
offshore. In many factoring programs, foreign receivables can
be factored, though often at a reduced advance
rate.
Eliminating the Need for Personal
Guarantees:
Using factoring, you can often
structure a program that doesn’t require personal
guarantees. | |
