Are you onto a new project or maybe you’re looking into expanding your product line? Do you have to pay an already existing obligation or do you have to fund equipment acquisition? Are you setting up an overseas branch or are expanding locally? Whatever it is that you have your eyes set upon, your corporate ventures will always need and involve some sort of financial funding. Three of the most common methods employed by many businessmen are bank loans, single invoice discounting and business factoring. All these three provide for your needed funds but they are unique such that they have different requirements and terms all to their own. Read up below to gain some insights and ideas regarding these three and decide which one would and might fit your needs.
This is the type that is often employed if one is in need of a big amount of capital. This can be either short term or long term with a period from a matter of moths up to ten years all of which are subject to monthly repayments (or depending on the credit terms) as well as interests.
Here, the bank will require some sort of collateral as a security against your borrowings which may include but are not limited to corporate assets, personal properties and investments.
This one on the other hand is a short term financing method often used to better a company’s working capital and cash flows. Here, a business may draw money against one’s invoices even before such have been paid by owing customers.
This transaction will involve the borrowing of a percentage of the value of one’s sales ledger from a discounting firm and using the invoices as collateral. In basic sense, it is like getting a loan only you are not adding up to your debt thereby not increasing the liabilities portion of your balance sheet. The reason for such is because you are instead decreasing your receivables to increase cash.
Factoring is always confused with discounting and vice versa. This is because they provide the same effects and they actually have more similarities than differences. The only varying aspect is the fact that business factoring is not a loan. It is a sale.
Here, the company sells the right to collect against one’s invoices to a third party called a factor who in turn will give the value of the invoices in advance. Such is limited to a certain pre-agreed percentage. The remaining balance (less any fees) will only be forwarded right after the factor has fully collected from your customers. Business factoring when compared to bank loans are simpler and faster as the funds can be made available within 24 hours.
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