Factoring on the Rise

The following is a reprint of sorts from Inc. Magazine. So many small business owners are looking for creative ways to raise capital, this is certainly timely. Just make sure you know what you are getting into if you use factoring.

Both the Wall Street Journal and the New York Times have had stories in the past few days about small companies finding cash from sources other than banks and credit cards, which have restricted capital to entrepreneurs since the recession began in 2008. The Times piece covers purchase order financing, which it describes as a twist on traditional factoring. Purchase-order financing, says the Times, involves written guarantees from a buyer who commits to purchasing a product.The Journal's story focuses on asset-based lending, a collateral-based form of financing where borrowers put up equipment, inventory, accounts receivable, or other liquid assets. We told you about the rise of this kind of financing, in some cases known as merchant cash advances, which can have annual interest rates as high as 100 percent, back in 2008. Check out our profile of On Deck Capital, one of the asset-based lenders included in the Journal piece, which has doled out around $50 million to 2,000 businesses.

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