Bank Factoring

When I began my banking career in 1984, major banks had major factoring divisions. There were some major independent factoring companies still which eventually were acquired by the bank, although a few major factoring companies remained independent. Interestingly, I remember during a stint in my credit training with the factoring division of a major Dallas-based bank holding company, that their factoring rates were somewhat high.

I was used to working in the bank’s middle and national markets where rates were pegged to prime rate or LIBOR, but in the factoring and asset-based divisions, I saw rates that included huge commitment fees, fees on the unused or unfunded portions of asset based lines of credit and factoring commissions of 2% to 2.5% plus interest. Typical interest rates on factoring and asset-based loans were Prime Rate plus four to five percent. The factoring industry was booming and factoring contracts were paying banks effective annual rates of 25% to 30%, depending on their accounts receivable turnover ratio. No one was complaining. Clients could not sign up fast enough. That was 1984.

Bank Factoring Competition

Today, in 2009, competition among bank factoring and factoring companies, combined with historically low interest rates has made the cost of factoring about half of what it was in 2009. In addition, technological improvements and efficiencies have allowed factoring companies to provide better service and a broader range of services than what they were able to deliver in 1984. The definition of bank factoring is an oxymoron since factoring implies that another non bank entity is providing the funding.

Factoring companies today can provide credit approval in minutes on the phone, deliver reports on line via web sites 24/7, and transfer funds with the push of a button. If factoring companies received a reputation as an expensive financing vehicle in the ’80s, perhaps it was deserved, but if you are looking for bank factoring at normal bank rates, Interstate Capital is your answer.

Contact Interstate Capital to see if your company qualifies for our .99% flat factoring fee plus 12% APR program. This program requires good-quality accounts receivable that turn over at least 8 times per year (45 days average collection or better), and average monthly factoring volume of at least $100,000. per month. Interstate Capital has a variety of rate structures suited to meet the demands of businesses wishing to factor as little as $10,000 per month to as much as $5 million per month.

Author: Tony Furman
Copyright 2009
Interstate Capital Corp.

Difference between Bank Factoring and Borrowing Video

This video describes the difference between borrowing and bank factoring. Have you thought about borrowing money against your accounts receivable lately? Banks have proven to be tighter with funds than they are now. It doesn’t mean that banks no longer offer funding, but if your company’s not profitable right now, you can bet they’re not going to make it easy.

With factoring companies, they don’t care if you’re making money or if you’re profitable. Its irrelevant. They also don’t care what shape your balance sheet is in. Companies like Interstate Capital can get approvals in minutes, not weeks.

Funding from factoring can happen in a few days, not a few months. In fact, most companies can receive an instant on-line rate proposal right from our web site at InterstateCapital.com. Factoring companies make the whole process so easy and without the need of a bank.

Applying Online for Bank Factoring

From there, you can apply on-line and get an instant approval within an hour. In addition to providing far greater availability against your accounts receivable than what banks would provide, Interstate Capital also acts as your credit department, assisting you to establish prudent credit limits for your customers.

We provide 24-7 online access for credit inquiries and instant approval on tens of thousands of companies.

Professional Collections Department

In addition to providing credit and funding services, Interstate Capital provides another time and money saving service that banks don’t offer. That is a professional collection department. Automated statements are sent to your clients to assist them in paying you more quickly. We also make follow-up phone calls to obtain payment status.

In short, Interstate Capital advances more money, help you to reduce credit losses, and save you time and money by collecting your payments for you through bank factoring related services.

If your company has a revolving line of credit at a bank, credit union or other federally insured financial institution, you may find that renewing that credit is not as easy as it used to be. In fact, you may have already heard from your bank that it wants to reduce your line of credit or that it is requiring more collateral. Why won’t your bank do today what they were willing to do last year?

The answers are complex. In the fall of 2008, the secondary market for all types of financial transactions practically disappeared overnight. You may have heard the terms “collateralized debt obligations” (also known as “CDOs”) and “mortgage-backed securities.” These are just two names given to products that financial institutions and investors used to trade among themselves, through Wall Street brokers, that provided liquidity to the financial markets. Essentially, banks originated products like mortgages, real estate loans and commercial loans. Banks then packaged these products with others and sold them in the form of securities (hence the term “securitization”) for cash in the secondary market. Often, the rights to service these products were retained by the originators, but the underlying assets were not. With the cash generated from the sale of these assets, banks made new loans.

Factoring or Banks?

When the subprime mortgage debacle hit full force in 2008, the markets for other types of securitizations also fell apart, leaving banks unable to sell off loans they originated. Without a market to sell off these loans, there became a log jam that has come to be known as the credit crunch of 2008. The credit crunch had a profound impact on collateral values, so borrowers’ equity in their collateral vanished, leaving less margin against which banks could lend. Banks suddenly found themselves without the ability or the desire to make new loans or renew existing ones.

If your company has a line of credit and the primary collateral is accounts receivable, you may consider adding factoring as a tool to raise additional funds for working capital or for expansion capital. Interstate Capital can analyze your commercial accounts receivable, determine the value and advance your company funds to pay off your line of credit and make additional funds available to your business.

The term, factoring bank, since banks do not typically provide factoring services, nor are factoring firms, such as Interstate Capital, considered banks.

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