If you found it challenging to secure bank financing in 2023, it’s likely that 2024 will bring more of the same.
DELRAY BEACH, FL / ACCESSWIRE / December 27, 2023 / The most recent Senior Loan Officer Opinion Survey from the Federal Reserve, released in October, revealed a common theme, stricter credit standards for Commercial and Industrial Loans (a.k.a Business loans) across the board, affecting businesses of all sizes. This tightening of lending standards is a response to factors such as continued economic uncertainty, reduced tolerance for risk, deteriorating credit quality, declining collateral values, and concerns about funding costs.
In summary, access to traditional bank financing for small and middle market businesses may remain elusive for the foreseeable future. If your business provides services to other businesses offering payment terms, and you’re waiting longer and longer for payments, leveraging your accounts receivables could be a rational strategic move to ensure a consistent source of working capital.
Factoring, a well-established global financing tool, might be one of the most accessible forms of funding available to perhaps the widest range of businesses today.
Here’s a basic overview of how factoring works:
– You continue to invoice your customers as usual.
– When you need funding, you submit invoice(s) to a factoring company.
– Typically, within 24 hours, funds are wired to your bank account.
– Instead of receiving payments from your customers, the payments are sent directly to the factoring company.
– The cycle continues with the submission of the next set of invoices.
Why should you consider factoring as a financing option for your business in 2024 and beyond?
1. : Whether you’re a startup, rapidly growing, or an established company, factoring is likely available to you. Factors often work with businesses facing challenges such as poor personal credit, weak guarantors, operating losses, high customer concentration, extended terms, limited financial reporting and restricted industries. They prioritize factors like your customers’ creditworthiness, sales terms, your experience, looking beyond traditional bank underwriting obstacles to provide funding.
2. : Factoring is all about collateral and is therefore a highly monitored form of financing. While it comes with a cost, it can be affordable when used wisely. Depending on your annual sales volume, annual factoring costs can start from high single digits (8-10%) to low teens (12-14%). By timing funding to meet specific needs, such as covering payroll, you can effectively manage the costs and ensure a steady flow of working capital.
3. : Factoring companies are not collection agencies. Their primary role is to facilitate communication regarding potential payment issues, thereby ensuring payment in its normal course. They can help identify payment or performance promises that haven’t been met, ensure your customer has received the invoice, and set reminders if payments are delayed. Most factoring companies maintain anonymity with your customers, with payments still made in your company’s name but directed to a discreet P.O. Box.
If you’ve been turned away by banks or previously dismissed factoring, it might be the right time to reconsider this financing tool and its numerous advantages, especially when traditional bank is likely to become harder to obtain in 2024.
Marc J. Marin is the Managing Director of Gateway Commercial Finance, LLC a nationwide factoring company based in Palm Beach, FL.
SOURCE: Gateway Commercial Finance, LLC
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