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Becoming Bankable - The Factoring Path

For many businesses, traditional channels for obtaining credit are often not practical.

To understand why, consider the following scenario.

Suppose you own a small construction business. You’re very good at what you do. Your workmanship is first rate. You finish the job on time and within budget. All your clients are extremely satisfied. Naturally, you want to capitalize on your reputation and grow the business.

You need money to make money

However, in order to take on additional projects, you need an injection of capital. So you approach your local bank. The bank sees you as any other customer. They look at your credit rating, your cash flow, how much debt you’ve already incurred. They demand serious collateral irrespective whether you've been a long term retail customer.

But here’s the thing. You need to improve your cash flow to grow your business. But the bank won’t give you a loan because your cash flow is poor. It’s a classic chicken and egg situation that’s needlessly holding business back. How do you get working capital to grow if you need to grow to get working capital?

There’s a much more effective and rational solution. Invoice factoring is especially designed to address the real world needs of businesses of all sizes.

Let’s consider the alternatives options.

1. Business loans and lines of credit

Bank loans are the obvious source of business credit. If your business is able to secure a low-interest loan with favorable terms, that can be an invaluable source of credit.

However, favorable business loans are often unavailable to the businesses that need them most. The banks may turn you down based on your credit score and current cash flow, or they may demand additional collateral.

There’s another important factor to consider. Bank loans take time to approve. Often, you need the cash right away to invest in a new project. In many cases, getting the cash too late is as bad as not getting it at all.

Furthermore, bank loans add additional debt to your balance sheet. This can further affect your credit score.

2. Personal loans

If your business does not meet the strict criteria for a business loan, you may still be eligible for a personal loan.

In such a case, the bank will consider your personal credit history. You will probably be required to put up personal collateral.

This option has its place. But it should not be undertaken lightly. If your business encounters problems, you will be personally liable. You could lose your property. You don’t want to lose your home because of unforeseeable market outcomes.

3. Invoice factoring

Invoice factoring is designed to be a fast and effective source of cash precisely when a business needs it.

The process is simple. You invoice your client, as you usually would. However, instead of waiting out the lengthy payment period, the invoice factoring provider will advance the cash (as much as 90% of the invoice owed) within a couple of days. The whole process is simple and transparent.

It’s an elegant solution to a real-world problem. Your business gets working capital when you need it. As studies show, that’s the key to a thriving business.

When is invoice factoring effective?

Of course, invoice factoring is designed to meet specific cash flow needs. You are not risking any collateral and not incurring any debt. At the same time, that also means that the amount of credit you can obtain is limited by how much you have invoiced. In other words, invoice factoring is an excellent means of enhancing your cash flow. It can help ensure you can take on new clients and fulfill new projects.

For many businesses, invoice factoring is an effective solution to their day-to-day cash flow needs.

Frequency Capital: A more accessible source of finance for businesses

Frequency Capital provides fast, transparent, and accessible financing to businesses. By providing quicker access to working capital to help your business grow. The process is entirely transparent, with no hidden fees.

Get in touch with us today to find out how Frequency Capital will help you enhance your cash flow

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