Loan Sharks VS. Factoring Companies: Who Should I Trust?

Posted by Factor Funding Co. on July 23, 2014

There are times when all businesses hit a snag with their finances that can make or break many companies looking to grow and expand. Sometimes founders might leave, investors bow out at the last minute or there simply isn’t enough cash flow for the business to last another year, unless there is a drastic change in the finances. When this happens most business owners will head over to the bank and try their luck there, but what if the bank isn’t a viable option? What if it feels like there are no more safety nets to help the business during rough economic times? This is when businesses usually turn to factoring services, although factoring tends to get a bad rap and some are considered loan sharks. This is far from the case these days but loan sharks are still in business and making money as well as factors.
Loan Sharks vs. Factoring Companies: Who Should I Trust?

Factoring Companies VS. Loan Sharks

So who should a business owner trust? Here’s a breakdown of both and how it works with a company’s financials. How exactly does a factoring company operate?

When a business hands over their accounts receivables to a factoring company the factor will then give the business an advance of about 70 to 90 percent of the money owed and then the factoring company takes about a .05 to 30 percent cut from that. There may also be some fees associated with factoring such as setting up an account, auditing and possible renewing of the contract. However factoring companies are in the business to help businesses and that means collecting money that is owed to them when a business can’t.

On the other end there are loan sharks. Most of the time they are mostly looking out for themselves and do a similar service to factoring companies They also collect on debts owed but will also ask for very high fees and interest rates that could potentially put a business in a tougher situation and eventually force them to close their doors. Also, loan sharks won’t provide the same feedback and information that a factoring company will regard finances.

Who Is More Trustworthy?

In recent years factoring companies have been seeing marked improvements in their client relationships and the technology they use. Because of these changes businesses that utilize factors have been seeing a complete turnaround in their cash flow. Instead of feeling hopeless and desperate with their situation they were able to get the money they were owed. This is all with the help of a savvy factor right by their side. So who is more trustworthy? Business owners can either trust the factoring company that does the heavy work of accounts receivables for them or the loan shark who will charge exorbitant fees and could potentially leave a business in worse shape while being nowhere to be found.

*Image courtesy of freedigitalphotos.net

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