Construction Factoring vs. Getting a Loan [Key Differences to Know!]

Construction Factoring vs. Getting a Loan [Key Differences to Know!]

A common misconception and an important distinction to make in construction finance is that there is a difference between factoring and alone. Many people believe that invoice factoring is alone when, in fact, because you’re selling the invoice to the factoring company, it is not alone.

The factor rate is a fee that you’re paying to the factoring company, Whereas if you were to receive loan proceeds, just like a mortgage on your house, you’re going to pay a rate of interest on the money that you receive.

A key difference between factoring your invoices and obtaining a business loan is the underwriting process or the process that the company providing you.

The money is going through to determine.

If you qualify for the program and obtaining a loan, You have to be credit worthy enough for the bank to provide you the money.

However, an invoice factoring the factor company wants to make sure that the person paying you or your customer is credit worthy or qualifies for them.

To give you the money.

In the case that you may not be able to qualify for a loan, you may be able to factor invoices.

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It’s important to remember.

When you factor invoices, you’re only getting advanced a percentage of the invoices value. So if you really need the entire value of the invoice, then factoring may not be the best option alone.

On the other hand, if you apply for a 10 000 loan and get approved, you’re going to receive 10 000 and you’re going to pay interest on top of that, Whereas for factoring a 10 000 invoice, you may only receive 80 of that Invoices value So 8 000 in this case, So a key decision you need to make is how much money you need or how much money your business needs in that moment when deciding between factoring an invoice or obtaining a loan.

I hope this helps.

You better understand the differences between invoice factoring and business loans.

If you have any additional questions, make sure to visit us at the expert center linked below and remember that payment help is here.

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