Many business owners are faced with the prospect of being unable to qualify for bank loans from traditional lenders. If you’re in this category, there are still some options available to you, such as factoring or asset-based loans. Below you will find a description of the difference between these two transactions, so you can determine if either one might be suited to your business.

Approval Time

If you’re in a situation where you need money urgently, you should probably choose factoring over asset-based loans. In most cases, you can obtain money from a factor in just a couple of days, because all that’s really necessary is to verify your invoice accounts. On the other hand, asset-based loans can only be extended to you after the true value of your asset has been evaluated and approved. Any lender will always want to verify the value of an asset before it can be used as collateral in a loan. This process can stretch out a week or more, depending on how difficult it is to verify your asset value.

Credit and Collateral

When your business has a poor credit history or none at all, factoring will be a better choice for you, because it simply doesn’t rely on your credit history. Instead, what really matters in factoring is the credit-worthiness of your invoiced customers. On the other hand, in an asset-based loan, what’s really important is the actual value of the collateral, because the amount of any loan extended to you will generally not exceed the value your asset can be sold for.

Risk Factor

Of the two transaction types, factoring is generally considered to be somewhat riskier, because it often involves businesses which are growing or which are brand-new startups. There is less risk involved with an asset-based loan because, in the event of any default on payments, the lender has the right to seize the asset and sell it to recoup any losses on the loan.

Privacy

Business owners who place a premium on privacy generally prefer asset-based loans. When factoring is involved, your customers will always be contacted so that their accounts can be verified, and they will also know that you’re using factoring as a means of generating income. If you would rather keep the details of your business private, asset-based lending would be the better choice for you, since it involves very little interaction between lender and customer.

Interested in Asset-Based Lending? 

If you have a valuable asset to use as collateral, we might be able to provide the funding you need for business growth. Contact us at LMC Alternative Business Capital to discuss some options which may be available to you.