Everything You Need To Know About Factoring as a Form of Equipment Financing

As the owner of a startup, you may not have the cash necessary to purchase essential machinery. One savvy type of equipment financing that can help overcome this difficulty is factoring. These modern loans help entrepreneurs like you purchase everything necessary to start serving customers. Here’s a look at what cash-strapped buyers need to know about these fiscal arrangements.

How Factoring Works

Factoring is different from traditional loans. Rather, it is an arrangement where a company sells outstanding receivables in exchange for cash. The entity that buys owed monies, known as a factor, first researches the deals that have been made and verifies client credit histories to determine the reality behind their worth.

Assuming your customers have solid credit, you can be approved for up to 80% of the total of your outstanding invoices. This amount is given to you upfront. Meanwhile, the remainder is held in reserve until the client pays and the factoring entity has taken its fee.

Why Factoring Is Smart

In comparison to bank loans, factoring tends to be easier and quicker. Banks can take weeks to process applications. On the other hand, factoring agreements are typically approved in a matter of days.

There are other advantages, as well. For instance, it’s your clients’ credit histories that are examined rather than yours. You’ll probably be able to get more money than if you applied for a bank loan, and there’s no risk that the equipment you buy will be repossessed. 

Best of all, this approach to equipment financing means you assume no debt. This is preferable when facing a financial hardship such as an operational emergency or unexpected business slowdown.

What Factoring Can Provide

The funding you receive from factoring can be used for many types of business purchases. Once the money is available, you may need to fill out some paperwork. Speak with your equipment dealer to pinpoint purchases that match your budget.

Since you aren’t joining forces with a bank, closing these deals is relatively speedy, and you’ll never be required to buy from specific dealers or have equipment appraised. Use the money to buy computers and software licenses, modern kitchen appliances, product manufacturing devices, or whatever else your enterprise mandates.

No matter what sort of equipment needs you have, factoring can help fulfill them. Instead of asking for assistance from a bank or credit union, use equipment financing to fund what you require.


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