21 Jan Financial factoring or SME Credit?
The main difference between financial factoring and an SME credit could be the functionality they have. On the one hand, factoring is an alternative to obtain liquidity, while SME credit works for both liquidity and investment. That is, both can give you financial help but without a doubt, they are very different things. Next, we will explain both concepts so you can compare them and understand them better.
Financial factoring is a method used as an alternative to financing, since it allows all accounts receivable that you have to be sold to third parties. That is, it works in such a way that all the invoices that you have pending for charge, you offer them to a factoring company, so that they are totally in charge of it and you receive the money to continue operating.
This strategy could be an option when your business loses total liquidity and you need to improve the cash flow. However, factoring is only responsible for giving you “what you owe” from those accounts receivable, helping the credit and collection areas within your SME. The limitation is precisely that you can not use it to invest in your business and that it grows, because it is not a financing that serves to achieve long-term strategies.
In addition, there are several barriers so that the pending invoices that you wish to sell to the factoring company classify as viable. For example, some of the criteria used to accept your accounts receivable is the amount, term and the possibility of recovery. Procedure that is subject to a great analysis and in which to get an answer, you would have to wait for the time determined by the institution that you approach.
The SME credit, is the financing method to which most businesses and ventures come, through it, you can get an amount of money to use as working capital or invest in the business. And although up to this point it might seem as viable as factoring, the difference is that the amount you get with a loan is an amount adequate to the diverse needs that a business can have. That is, it works in such a way that you can use it both to acquire liquidity, as well as for working capital and also to invest in short and long term stocks.
Another big difference against factoring is the way to obtain it, since the criteria to make it feasible to grant it are broader. That is to say, they check the level of billing of your business and the financial statement, since you could be obtaining an amount of between 100 thousand to 2 million.
Immediacy is also an advantage that you could have, since today financial institutions have emerged that facilitate access and response time. That is, they request fewer requirements and can analyze them more quickly with the help of technology to be able to give you an answer at that moment.
Which to choose?
Depending on the needs and vision you have for your small or medium business, you must decide what is best for you, if you opt for the factoring or request an SME loan.
# 1 Analyze the viability
What we recommend is that you first analyze these two options internally, identify the viability that would exist on the part of your business both to obtain a loan and to sell your accounts receivable.
# 2 Take into account the future
To this, add the vision you have for your business both short and long term, it is important that all financial decisions take them thinking in the future and taking into account the benefits you could get.
# 3 Always compare
Once you have the complete analysis and find out which one would work best, research the various institutions that offer these services, so that you can compare the way they work and what they would be willing to lend or offer you.