Invoice factoring and the amount available for funding relies on your company’s sales rather than the time you have been in business, personal credit score, or business credit score. Only 46% of businesses received the full amount of financing sought according to the 2017 Small Business Credit Survey. 44% to 90% of small businesses reported financing shortfalls due to insufficient credit histories and collateral.
Business Credit Funding
The Small Business Administration found that 20% of small business loans are denied due to business credit scores, and nearly half of small businesses use personal credit cards to finance their company. The benefit of factoring is that you gain access to working capital without risking your credit score. Working capital funding strategies through factoring companies allow your business the financial freedom to meet deadlines and goals otherwise challenged by cash tied up in accounts receivable. Paying vendors, employees, and contractors on time improves your business credit rating, and it can even lead to supplier discounts for early payment.
Business Funding, Bad Credit
Some financing options do not demand that you have a good business credit or a good personal credit score. Some lenders will charge higher interest rates for funding a business with poor credit, while others simply evaluate different things when underwriting. A business credit card can finance your business, but will your credit limit be enough to cover your needs? Probably not. Further, a bank will be less likely to lend to a business with poor business credit or a business owner with poor personal credit. Scores above 600 and at least 2 years in business will be just some of the requirements.
Options for Business Funding with Bad Credit
Online loans can have more speed when it comes to underwriting, but unfortunately this is not a reliable option for businesses with bad credit. This is because online lenders rely on algorithms for underwriting. A major economic downturn or global pandemic can put these lenders in a risk-averse mindset and they will slow their lending. MCA lenders or merchant cash advances are fast but extremely costly. These too are in limbo due to the amount of businesses that simply do not have the cash flow to make daily or weekly repayments. Crowdfunding is always an option for businesses, but you never know how much you will raise or when you will raise the funds. An option that many businesses choose to take is flexible financing that improves their cash flow and helps build business credit so they can get a small business loan from a bank in the future. This is known as accounts receivable funding or invoice factoring.
Accounts Receivable Funding and Business Credit
Accounts receivable funding helps your business avoid late fees, litigation, and dings on your credit score. Many businesses pay their suppliers when they are paid by their customers. When your company sells on credit terms, waiting on customer payment can mean late payments to suppliers that incur late fees. These fees can amount to a drain on your already strained working capital and cash flow. Early or on-time payment practices by your business also prevent expensive court fees. Costly court fees are commonly found when a company misses payments to lenders. A defaulted loan can mean an aggressive collections process as well as taking a hit on both your business and personal credit scores.
Invoice Factoring No Credit Check
Factoring your receivables can likely be the best option for financing your business. Whether your company can’t secure enough funding due to poor credit, a short time in business, or strained cash flow statements, factoring companies offer unique and flexible funding options. Invoice factoring companies evaluate different things when underwriting a factoring facility.
Since factoring services use receivables as collateral, they rely on the credit strength of your customers rather than your business.
Why Can You Receive a Factoring Facility with Poor Credit?
This means that businesses with poor business credit or business owners with poor personal credit will still qualify for a factoring facility of up to $5 million. Why? Since factoring services use receivables as collateral, they rely on the credit strength of your customers rather than your business. The factoring company is paid by your customers not by your business. Essentially you are just selling your invoices to a factoring company at a 1% or 2% discount. Accounts receivable financing is not a loan, so there is no debt associated with your factoring facility, nor does it show up on your company balance sheet or credit report. Waiting to get paid by your customers can stall your operations. Factoring provides your company the funding needed to grow.