Why Businesses Prefer Asset-Based Lending Over Factoring

Previously, when businesses needed finance, they used factoring to get quick funding, as it meant that they didn’t have to go through the tedious process of conventional loan financing.

However, over the last few years, more and more businesses are opting for asset-based lending to meet their financing needs.

In this article, we’re going to find out why asset-based lending is a better choice compared to factoring. But before that, let’s understand what both of these arrangements entail. 

Let’s begin!    

Factoring

Factoring is a financial arrangement that allows an organization to trade payments that are due to customers in order to raise quick finance. The company is able to receive 90 percent or more of the value of the invoices within a few days, rather than waiting for a few months. 

Asset-based lending

Asset-based lending is a secured form of financial arrangement that provides a company with a line of credit using their assets as collateral. The collaterals can be account receivables, inventory, and machinery that’s owned by the business.

Why Businesses Prefer Asset-Based Lending Over Factoring

Asset-based lending offers more privacy

A factoring arrangement does not offer privacy to a company, as the factor contacts the customers in order to verify the invoices to ensure their accuracy and validity.

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However, asset-based lending is very private and involves minimal interaction between the lender and customers—or even none, if you’re using inventory or machinery as collateral.

Even if you use accounts receivables, they will only verify a handful of invoices. Usually, the customers do not know what you’re using asset-based lending. 

This can be important for businesses that don’t want their clients to find out that they’re using such arrangements, for any reason whatsoever.  

Asset-based lending provides access to a large amount of finances

Factoring is primarily used by small businesses and startups that don’t require an extensive amount of finance, hence only good for handful purposes 

Asset-based lending; on the other hand, allows a business to raise a large sum of finance, which can be used in numerous ways.

For instance, the company can use the money to finance acquisitions and mergers, expand into new markets, introduce a new product line, launch advertising campaigns, and much more.

Asset-based lending offers better value

Asset-based lending costs a company less money compared to factoring. The reason is that the latter charges a percentage of the full value on the invoice, which can take away a big chunk of the money that a company was entitled to receive. 

Conversely, using asset-based loans, the company gets financing by simply making interest payments calculated via annual percentage rate, which is roughly around 5 to 15 percent, depending on the risk, amount and other costs associated with the arrangement. 

Global Capital Partners Fund LLC is one of the leading private lending firms in NY that offers asset-based lending on flexible terms. 

The company also provides a range of commercial real estate financing solutions to its clients at competitive rates. 

Call us at +1-800-514-7350 to learn more.

Categories: Asset Based Lending

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