4 Reasons Why Accounts Receivable Financing Might Be the Best Choice for Your Business
If you are working toward growing your company or are going through a slow period, your business may be in need of additional funding. For smaller businesses or those who are just starting out, getting this money can sometimes be difficult. In some cases, a traditional loan may not be an option. Another choice to consider is accounts receivable financing. There are several reasons why this might be good for your business.
1. You Don’t Need Additional Collateral
When you are trying to get a loan, you may sometimes need to put up collateral. However, if you don’t have anything available to use for this or you have already used your assets for something else, then you may not be able to qualify for traditional funding. With AR financing, your invoices are the collateral, so you don’t need to worry about having anything else.
2. You Can Avoid Adding To Your Debt
If you have already taken out a loan, you may not want to increase your debt. Not only will this add to your monthly payments, but it can also negatively affect your credit. Having a high debt-to-income ratio can lower your credit score, making it more difficult to receive other types of financing in the future. Because you are selling your invoices instead of borrowing money, AR financing does not result in added debt.
3. You Can Get Your Money More Quickly
Applying for a loan is often a lengthy process. There is usually a lot of paperwork involved and, even if you are approved, you could be waiting months to get your money. Accounts receivable financing generally has a much shorter wait. In some cases, you can be approved in less than a week and will receive your funding soon after.
4. You Don’t Need Great Credit
If your business doesn’t have a long credit history or has a low credit score, getting financing can become a struggle. Lenders don’t want to risk loaning money to someone who may be unable to pay it back. Luckily, when you use AR financing, your credit isn’t the focus. Because you are selling your accounts receivable, the credit history of your customers is more important for this type of financing.
When you need money for your business but are unable to qualify for a traditional loan or you think that it might not be the best choice, don’t forget that there are other options available. If you are looking to get funding quickly without acquiring more debt, accounts receivable financing might be the right option.
