Accounts Receivable Loans: How do they Match Up?

Posted by matthew begley on Tue, Oct 16, 2012

One of the questions I am asked on a regular basis is how accounts receivable loans match up to other financing products available to small businesses. I created the matrix below as a simple way to compare the most important aspects of different forms of available financing.

accounts receivable financing

Accounts Receivable Loans

 accounts receivable financing

 

 

Accounts receivable funding is best for companies without significant, positive operating history, where having financing in place quickly is of upmost importance. Pricing is typically higher than bank lines of credit or asset-based loans.

Bank Line of Credit 

accounts receivable financing

 

 

 

Bank lines of credit are the solution of choice for companies that meet the criteria based on the significantly lower cost of borrowing. Prospective borrowers must have several years of profits and strong credit. Time to initial funding can be long, with a general lack of flexibility.

Equipment Loans

accounts receivable financing

 

 

 

 

If your company has a history of strong positive cash flow and is equipment intensive, then an equipment loan is probably the best choice for you. There are both bank and non-bank lenders who provide equipment loans. Bank lenders offer significantly better pricing.

Asset-Based Loans

accounts receivable financing

 

 

 

 

Asset-based loans are best suited for companies with a long history of operations that need the most cash available from any source.  Assets-based lenders provide more money than a typical bank lender. The downside of asset-based loans is that lenders are looking for minimum loan sizes of $5,000,000 and the cost of documentation and reporting can be extremely expensive.

Equity

accounts receivable financing

 

 

 

Equity financing is best suited for companies that have a lack of collateral to provide a traditional lender. Unless your business model is extremely unusual and attractive to outside investors, it is hard to find interested parties. The cost of outside equity is extremely expensive, as you have to sell a significant portion of the ownership in your business. You also lose freedom in decision-making.

By comparing the pros and cons of the different funding sources available to your business, you have the power to make the best choice for now and the foreseeable future.

Fast A/R Funding specializes in offering accounts receivable loans for small businesses. Download our informative “5 Myths of Factoring” guide, or call 888.833.2286 to speak with one of our small business finance consultants.

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Tags: Invoice Factoring, Business Loans