FREQUENTLY ASKED QUESTIONS ABOUT
BANKING VERSUS FACTORING:
                                 
At 3 points per month, That's 36% per year
(rates range from 1.59 to 3 points)

While It is tempting to annualize the numbers, it is truly an "apples-to-oranges" comparison.  Banks loan money at
an annualized interest rate, 12% per year for example. 

We purchase your receivables at a discount.  The products are different and there are other major inconsistencies
when one tries to compare bank lending to factoring.

The bank provides money only one time, the day that you receive the loan; we provide the money continuously.   As
an example, consider a bank loan for $100,000.00 at 12 percent.  You receive the $100,000.00 just one time and
then pay $1,000.00 interest per month and you still owe
the bank $100,000.00. 

Or, the bank could provide you with a Line of Credit that
you use only when you need the money, but the bank charges you for that privilege and if you need to increase
your Credit Line, you need to go through the qualifying process all over again.

When you Factor $100,000.00 each month for a year,
you have the use of $1.2 million (12 x $100,000.00) over
the year.  Unlike a bank loan where you just have
$100,000.00 one time.  Assuming a 3 point discount,
the fees over the year will be 12 X $3,000.00 or
$36,000.00, which is still only 3 percent of $1.2 million
and at the end of the year, YOU HAVE NO DEBT!

I'm only making 3% profit, how can I
pay you 3 points?

A company only making 3% net profit can do more
business volume as a result of factoring, and the larger
volume will result in a higher profit margin because fixed
costs do not interfere with volume.  The added business
at a higher marginal profit leads to an increased overall
profit margin .  As the volume of your business
increases, the cost of production decreases, so that
profits increase. 

Fixed costs (i.e. rent, electric, insurance, etc) increase
very little or not at all with volume.  An increase in
business will not affect rent.  Electric bills may rise
slightly. Worker's compensation insurance may rise
slightly.  These costs do not increase as do direct
production costs.

But I only get 80% of my money up front
(Advances typically range from 70-90%)

Assuming an advance rate of 80% and a beginning
of factoring in January.  Factoring $100,000.00, you
receive $80,000.00 of that money up front, with the
remaining money making up the fee (3%) of $3,000.00
and the reserve (17%) of $17,000.00.

Now, in February you once again factor $100,000.00
and receive $80,000.00.  However you also receive
your January reserve of $17,000.00 (assuming that
your customer pays you in 30 days).  So, for February
you actually receive 97% of your money, instead of
80%.  In the second month going forward, your are
basically receiving 97% of your cash flow.