How Export Factoring is Better Than Bank Loans

Trade Guide

04 May 2023 • 10 min read

How Export Factoring is Better Than Bank Loans

Raghav Sand

You may find that bank loans are less advantageous over the long run when you compare factoring with traditional finance.

You can think about a conventional bank loan or alternative finance if your company requires additional funding. Export factoring is becoming increasingly popular as a viable financing option due to the difficulty in acquiring bank loans or lines of credit.

For many small, expanding firms, export factoring (also known as invoice finance) is preferable to bank loans for this reason. Our customers tell us that they must wait for 3- to 6-month approval period if they do not yet have the financial records or annual revenue the bank requires. The bank will occasionally refuse to communicate at all.

Here are six factors that may influence your decision to choose factoring over bank loans when evaluating your options for business finance.

  • Convenient and Quick: Bank financing options have extremely strict standards and demand an enormous amount of documentation, which frequently makes the loan approval procedure difficult and drawn out. The bank's decision can take several months. Even worse, the loan might not even go through after all that time, leaving you with no way to receive money.The approval procedure for export factoring is quick (through an online application), and the export factoring contract is straightforward.
  • Better Cash Flow: Invoice factoring is a reliable source of cash and flexible financing if you cannot be approved for conventional loans or lines of credit but need to enhance your company's finances. Factoring for cash flow increases liquidity, enabling firms to pay their bills on time and take advantage of more possibilities to grow and make money. Examples of these expenses include payroll, bulk purchases, and corporate expansion.

  • No Long-Term Debt: The fact that no debt is formed is undoubtedly one of the main benefits of invoice factoring over bank loans. You will not have the responsibility of having to repay loans because you are just financing the collection of future invoices (leading in a greater cash balance and a decreased account receivable balance).
  • No Limitation or Caps: There is a limit amount that can be borrowed with bank loans. If you need more money after you have used up the maximum amount you were granted, you will have to start the application procedure all over again.
  • Cost Effective: Numerous services offered by export factoring can lower your administrative expenses or otherwise benefit you. You may devote more time to working on your business by letting the factor handle the credit checks, freeing up time that would otherwise be spent on administrative tasks like tracking down overdue payments or processing invoices.
  • Drives Business Growth: One of the main factors driving small firms to employ export factoring services is that they are expanding and expanding need cash to cover present costs as well as costs for major projects or new clients.

Is Export Factoring the Preferable Choice for Your Business?

Here is a quick breakdown of export factoring vs. bank loans:

What Financing Option Is Best for Your Business?

It is evident that export factoring has a lot of benefits. With factoring, you can increase your funding without taking on any debt. You might find that bank loans are less advantageous over the long run when you compare factoring with traditional funding. You may end up paying more than you would with factoring for access to that money, and your company's balance sheet would have a new liability.

To know more about what export factoring is and how export factoring works, click here and you will be redirected to a detailed blog.

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