Service Business Factoring
Service businesses are unique in that they rarely have valuable assets outside of their accounts receivable. While considered “tangible” from an accounting standpoint, accounts receivable have little real value to any party except the owner of the accounts. This quality makes it difficult for service businesses to obtain traditional bank financing. Banks prefer to lend against assets they can touch, see, and feel.
Factoring companies, on the other hand, exist because they recognize the value in accounts receivable.
Unlike banks, accounts receivable factoring companies specialize in the financing of accounts receivable. Factoring companies seldom, if ever, seek additional collateral, such as inventory, equipment, or real estate. Therefore, your service business may qualify for accounts receivable factoring while it may not otherwise qualify for a bank line of credit. If your service business does qualify for a bank line of credit, it is likely that the amount will be a fraction of the value of your accounts receivable and your advance rate against your accounts receivable may only be in the 75% to 80% range. Further, your bank is likely to require you to pledge all your company’s assets, whether they have any value as collateral or not, to the bank as additional security. This is known as a blanket lien. In some instances, factoring companies may also request a blanket lien on all company assets; however, you are likely to be able to negotiate this requirement on a case-by-case basis. Unless there’s a default of the factoring agreement, factoring companies are generally willing to release liens on non-accounts receivable collateral if the purpose of the request is to sell off or finance those assets elsewhere.
For these reasons, service businesses have been coming to factoring companies like Interstate Capital for years to finance accounts receivable, even when their credit is less than perfect and they have no other assets to pledge as collateral. Applying for factoring from Interstate Capital takes only a few moments, and funds can be available in as little as two to three business days. After the first funding, factoring your accounts receivable requires 24 hours or less. Contact Interstate Capital at (800) 422-0766 for your no-obligation factoring quote.
Author: Tony Furman
Interstate Capital Corp.