Getting a Business Loan by Ty Kiisel

Author:Ty Kiisel
Language: eng
Format: epub
Publisher: Apress, Berkeley, CA

Factoring, which involves offering your accounts receivable (AR) to another party at a discount in exchange for immediate cash, has been around for a long time. Its origins lie in international trade and it’s said to have started in the ancient world. The Europeans were factoring AR prior to 1400 and the idea came to America with the pilgrims. It’s the financial tool that wealthy financiers used to fund shipping companies to make the long voyages to the Orient or the New World to bring back goods like spices, cloth, tobacco, and other precious commodities.

In the truest sense, factoring isn’t a loan. The factor (the person or company who assumes the liability of the AR) isn’t as interested in the credit worthiness of the small business owner as they are in the credit worthiness of the small business’ customers. In non-recourse factoring, the factor assumes the liability of the AR, but that isn’t always the case. In the United States, if the factor doesn’t assume the credit risk and is unable to collect, courts will recharacterize the transaction as a secured loan—putting the risk squarely back on the shoulders of the small business owner. Make sure you understand all the terms and fine print before you sign on the dotted line.

There are basically three parties directly involved in a factoring agreement: The small business owner who sells the receivable

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