UK
IRE
AU
CA
US
ZA
NGExpert financial copywriter
Page written by Chris Godfrey. Last reviewed on September 6, 2024. Next review due October 1, 2025.
It only takes one financial misjudgment or a streak of bad luck to see your good credit turned into bad credit and then you’re locked out from many types of business loan. However, it doesn’t have to be like that. Read on to find out more about invoice factoring for businesses with bad credit, and how you can quickly unleash the value of your unpaid invoices to help your business grow.
Invoice factoring (also known as account receivables financing or invoice financing), functions like a business credit line or a series of short-term bank loans. However, unlike those types of lending, you typically do not need to provide other assets as collateral or supply a personal guarantee.
Invoice factoring eliminates the standard 30, 60, 90 days waiting time for your bills to be paid. Instead, when you issue an invoice to a customer, you receive a percentage of the invoice value as a loan from an invoice factoring company – known as the ‘factor’. Payment is usually made within 48 hours of submitting your invoice and you may receive up to 95% of the invoice value. When your customer pays the bill, their payment goes into a trust account that is controlled by the factor. The incoming payment is used to repay your loan and pay the factor’s interest charge and fees. Any remaining balance is transferred to your business bank account.
Yes. Unlike many other types of business loan, invoice factoring is not so reliant on your credit score. The invoices you borrow against act as security for the loan and the financial strength and reliability of your customers is more important. Usually, the better their credit is, the higher the percentage of each invoice you may receive upfront.
Most US businesses that get paid by invoice can qualify for invoice factoring lending. As long as your organization meets basic financial rules, (time in business, type of industry, minimum turnover, etc) and your customers pay their bills on time, you should be able to set up an invoice factoring account in only one or two business days. If you have outstanding and unpaid invoices at the time of setting up your account, you may instantly release the cash that’s tied up in them. Moving forwards, you can factor all of your invoices, or you can choose the specific customers and invoices you want to use for a loan.
Interest rates and fees for bad credit business loans can vary significantly, so it makes sense to shop around before settling on a deal. You can do this by approaching banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will introduce you to a choice of bad credit loan deals from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for business owners who have never taken out a business loan before or who have very bad credit.
This is the simplest form of bad credit loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Term loans can also be secured by adding a cosigner with good credit to the deal. This will also make the loan cheaper to maintain. Collateral may be required.
Withdraw as much as you want when you want from a loan facility up to the limit of your borrowing. You only pay interest on the sums you withdraw, not the whole credit line. This can make the borrowing significantly cheaper. Collateral may be required.
Secured business loans are usually easier for borrowers with bad credit to obtain. You provide hard assets, such as real estate, plant and machinery, or inventory as security for the loan. The lender holds a lien on the assets until the loan is paid back, then full ownership returns to you. Secured loans typically come with lower interest rates and fees than many other bad credit business loans.
Use your new equipment as you pay for it, while the lender maintains a lien on the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright. No added collateral required.
A merchant cash advance has a lot in common with invoice factoring, but is generally designed for retail shops that do business at the cash register. For businesses that accept customer payments by credit and debit card. Borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Your sales act as security for the loan, no added collateral is required.
Similar to a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), businesses may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales. This type of loan can usually be secured quickly as qualification rules are less intensive and credit scores are not so critical. No added collateral is required.
Available up to $50,000, SBA microloans come with relaxed qualifying rules and can usually be secured with FICO scores as low as 500, or even with no credit score at all.
No matter if you have bad credit or no credit, working with business finance experts can make all the difference when applying for your loan. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality bad credit business loans from a choice of lenders. Don’t let a poor credit score slow your business down. Register with Swoop today, check your financing options now.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
Swoop promise
At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
Find out more about Swoop’s editorial principles by reading our editorial policy.
Get your free invoice factoring quote today
Apply in minutes
FREE no obligation, personalised
quote
Prefer to talk? Call us on
+1 (202) 804-9308
G
E
T
Q
U
O
T
E
Click here to accept the cookies and enable this chat
yet? Register here!