The Difference Between Asset-Based Lending and Factoring

As a business owner, it can be overwhelming to research financing solutions. Still, understanding the ins and outs of the various services available to you is critical to your long-term success. If you have questions about alternative options, now is the ideal time to learn more. For some business owners, there is confusion about the similarities and differences between asset-based lending options and a solution like factoring. Consider these points and get a better idea of how these financing solutions work and which fits your needs best.

An Umbrella Term

Though not exactly the same, it is important to note that factoring is technically a form of lending based around an asset. However, there are some minor differences that are important to note. With factoring, you are using invoices as the specific collateral needed to secure the financing. In this sense, factoring simply falls under the umbrella of borrowing based around your assets. If you have invoices in your possession from clients who have yet to pay for services provided, then you can definitely use factoring to your immediate advantage.

How Factoring Works

An asset-based lending solution like factoring can be useful in a variety of situations. When a client has not provided payment for services, it can disrupt your cash flow. Instead of dealing with the many setbacks that stem from this scenario, you can approach a lender and have the invoices assessed for factoring services. Qualifying invoices are purchased from you and you are given a percentage of the value right away. You receive the difference, minus a fee, after the debt is collected from your client.

The Advantages of ABL

Whether you use factoring or another form of lending based around your assets, it is hard to deny the advantages that come with this financing option. Taking out a traditional loan from a bank is not always a possibility for business owners. When your eligibility is based around factors like a credit score, it can make matters difficult. The ability to use an asset as a way of securing funds can be wildly advantageous for business owners who are in need of a practical and fast alternative.

The current cash flow of your business is integral to your future. In order for your company to stay ahead, you need to know the ins and outs of different financing services. Learn more about asset-based lending solutions like factoring and it can provide you with a better idea of how to approach complicated issues with your budget down the line.

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