Factoring Line of Credit (FactorLOC) Commonly Asked Questions

Similar to a business line of credit, a factoring line of credit is an alternative financing facility that allows businesses to to receive funds as needed with minimal fees.

Factoring involves selling your invoices to a third-party (the factor) at a discount, in exchange for immediate cash. In contrast, a factoring line of credit is a bank loan for a set amount of funds that you can borrow from as needed. Repayment: Factoring is not a loan, so there is no repayment involved.

A business line of credit can improve your cash flow, may be more accessible than other funding options and can help you establish a relationship with your lender. But it may come with fees and typically has short repayment terms of two years or less.

Factoring involves selling your invoices to a third-party (the factor) at a discount, in exchange for immediate cash. In contrast, a line of credit is a bank loan for a set amount of funds that you can borrow from as needed. Repayment: Factoring is not a loan, so there is no repayment involved.

Many lenders require good to exceptional credit for unsecured LOCs, and they may also limit eligibility if your debt-to-income (DTI) ratio—the percentage of your gross income that goes toward monthly debt payments—exceeds a limit they set.

A loan gives you a lump sum of money that you repay over a period of time. A line of credit lets you borrow money up to a limit, pay it back, and borrow again.

While you will need at least some time in business under your belt before you will qualify for a line of credit, there are lenders that will work with businesses that are six months to one year old that meet minimum monthly revenue and credit score requirements.

1. A factoring application.

1. An accounts receivable aging report.
2. A copy of your Articles of Incorporation.
3. Invoices to factor.
4. Credit-worthy clients.
5. A business bank account.
6. A tax ID number.
7. A form of personal identification.

Factoring checks the credit of your customers, not your personal or business credit score. This allows you to receive cash advancements even if you have been denied for a bank loan or a line of credit.

Preliminary approvals generally take 24-48 hours. Full processing for new clients may require four to seven business days. Once set up, many factoring companies release funds within 24 hours after invoices are submitted.