Factoring and loan
The main difference between our financial services and traditional bank loan is that we give you access to a financial resource based on your customers' ability to pay.
When a bank lends you money, it evaluates your ability to pay interest on the loan and requires you to put up your assets as collateral for repayment of the amount borrowed. It has been shown in practice that the amount you can borrow, based on your own ability to pay, is insufficient to support the steady growth of a company. When you use factoring, you gain access to financial resources, based on your customers’ ability to pay.
The difference between factoring funding and bank loan is that factoring funding is an “absolute” value: it increases as your sales grow. The greater the number of creditworthy customers you attract, the higher your funding limit will be. Our services allow you to do business under conditions of unlimited funding and can relieve you of the need to borrow from outside sources. We require no collateral.
Cost comparison
It is very tempting to equate money received in the form of bank loan and money received through factoring, but this is misleading.
Factoring and borrowing work differently to replenish your working capital. They involve different degrees of control and provide different opportunities.
In the case of bank loan, the borrowed funds get tied up in the form of accounts receivable, at best, or, at worst, lose their value while sitting in a bank account.
Money received through factoring, however, is constantly being put to work and earning profit.
Loans are listed as liabilities, thus reducing the net value the company. Factoring is an off-balance-sheet instrument, making it possible to multiply earnings and profit without increasing liabilities.
In the case of bank loan, you receive the money as a one-time payment, whereas with factoring your business obtains ongoing financing as needed.
For example, if you borrow 100,000 rubles from the bank at 12% annual interest, you receive a one-time payment of 100,000 rubles. Subsequently, you pay 1,000 rubles monthly for the use of this loan, and at the end of the year you must repay 100,000 to the bank. Or, the bank may extend you a credit line, such that you can draw money from the line as needed, up to a limit, but you are required to pay for this privilege in advance (a service which is beyond the reach of many companies). If you suddenly need additional resources, the entire loan application process has to be started all over again.
If you transfer 100,000 rubles each month for factoring, you will be able to use 1.2 million rubles (12 x 100,000) in the course of a year. Assuming that the cost of the factoring services is 2% of the volume of accounts receivable you transfer, then your annual cost for factoring will be 12 x 2,000, or 24,000 rubles, which is 2% of 1.2 million. And you owe nothing to anybody at the end of the year.