What is the difference between factoring and a bank line of credit?

Apr 23, 2020


What is the difference between factoring and a bank line of credit?

Factoring definition:

Factoring is an alternative form of financing when your business does not qualify for a traditional bank line or credit. Factoring rates are typically higher than a bank line of credit, but much less than merchant cash advance loans. Factoring also allows you to retain all of your equity in your company.

How does factoring work?

Catalyst Factoring

Factoring with Catalyst does not impede your ability to get back to the bank when your financials allow you to quality. Quite the opposite, many of our customers are referred by bankers who know that factoring with us can help their customers for 18-24 months. Then, the customer can return or begin with the bank when they are ready.

If you are new to this type of financing, a comparison between a line of credit and factoring can often better explain the difference.

What are the differences between factoring and getting a line of credit?

Line of Credit Factoring
How is funding determined? The business that is applying's financial strength. This usually includes revenue and business history. Larger lines of credit can include collateral. Business owner credit scores can also be a factor. The financial strength and commercial credit of the business that is applying's customers.
How is documentation validated? Accounts Receivables Aging + Borrowing Base Copies of invoices and backup documentation showing completed transaction
How do your customers pay their invoices? Customers pay the business directly Pay to a lockbox managed by the factoring company
What is the fee? Interest Rate Discount Fee based on how long the invoice is outstanding

More questions about factoring?

Our team is here to answer your funding questions. Give us a call at 281-870-9182 or reach out online.