Will Bad Credit Affect My Factoring Application?

Posted by Factor Funding Staff on March 5, 2015

Running a successful and well-financed business can be possible even if you have bad credit. While banks may prefer people who have high credit scores, you can still get the financing you need when you use factoring to your advantage.


Factoring can in fact be ideal for someone who has bad credit and may not be eligible for a regular bank loan. When you need cash fast to help you run your business, you should appreciate these key advantages that come with factoring.

Factoring Is Not a Loan

When you have bad credit, the last thing you need to take on is more debt. Fortunately, factoring is not a loan, but rather the purchase of your outstanding invoices or accounts receivables.

When a factor buys your accounts receivables at a discount, you get the money you need now without being the primary individual responsible for the factor's obligation. Rather, the clients that owe you the money for their invoices will pay the factor instead of you. In essence, it is a transfer of these assets to your factor, which in turn lets you receive your money faster.

Credit Is Not the Main Criteria

Another fear that comes with trying to get financed with bad credit involves repeatedly being turned down by banks or traditional lenders. Your low credit score inevitably will sink you every time you put an application in for a loan.

However, while a factor may look at your credit score, the primary emphasis for approval revolves around your clients' qualifications, including:

  • Their credit scores
  • Their bill paying histories
  • Their geographical location, although many factors regularly deal with both domestic and overseas invoice customers
  • Whether or not their invoices can be verified

In some circumstances, you can even be approved if you have a bankruptcy on your personal credit record. The bankruptcy, however, must be discharged and cannot be open and still pending in court.

Factoring Reestablishes Financial Responsibility

Bad credit can seem like a large hurdle to overcome. However, factoring gives you a chance to practice good fiscal behavior and reestablish yourself as a trustworthy and creditworthy individual, both in your personal life and in the business arena.

While factoring does not involve taking out a loan, it does require that you use your money wisely. After you receive your funds, you can reestablish your credit by using the money to:

  • Pay your business' bills on time
  • Pay off accounts that were in default
  • Invest in assets that can be used to secure future lending
  • Put money aside for unexpected costs or emergencies

These practices will give you the experience you need to improve your creditworthiness and become a business owner with a solid financial record.

Factoring Is Affordable

Predatory lenders prey on people who have bad credit. They charge these clients high interest rates and engage them in long-term contracts that can be impossible to escape.

However, factoring proves to be very affordable and does not come with the predatory tactics that you understandably fear as someone who has bad credit. While the factor will buy your invoices at a discount, the discount and fees are affordable without hurting your bottom line. Instead of being charged upwards of 25 to 30 percent in interest, you instead will receive about 70 to 90 percent of your invoices' face value when you opt for factoring.

Factoring Is Fast

Ultimately, the biggest appeal that may come with factoring involves the speed at which you can receive your money. In fact, in many cases you can have your cash in a day or two, if not sooner.

This speed understandably appeals to you more than the idea of applying for a bank loan, which can take weeks to process. Even at that, you still risk being turned down if a bank finds that your score is too low for its preference.

Bad credit does not have to stop you from getting the business financing you need. You can utilize these key advantages that come with factoring and build a business that will endure for years to come.

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