Loan Workouts

How Invoice Factoring Can be Used in Loan Workouts

A loan default usually signifies that a business is experiencing financial distress. Defaulting on a commercial loan gives the bank the right to accelerate the loan obligations or charge default interest. Both result in costing the borrower more money in a situation where money is already tight. At this point, the bank may request a workout plan that involves restructuring the loan and payment schedule or ceasing a revolving line of credit. Dealing with a loan workout can be costly for a company as resources will be shifted to bank interactions rather than focusing on earning more revenues for the business.

Invoice factoring can be a beneficial strategy for businesses undergoing loan workouts, helping to navigate financial challenges and find solutions to their debt obligations. Here are ways that invoice factoring can be used in loan workouts:

  1. Enhanced Cash Flow: Loan workouts typically involve negotiating new terms with lenders to address financial difficulties. During this process, cash flow can become strained, making it challenging for businesses to meet their loan repayment obligations. Invoice factoring provides an immediate cash infusion by converting outstanding invoices into working capital. This improved cash flow can help businesses fulfill their loan repayment requirements while negotiating new terms.
  2. Debt Repayment and Negotiation: Invoice factoring allows businesses to generate funds quickly, enabling them to make timely payments towards their loan obligations. This demonstrates a proactive approach to resolving outstanding debts and can strengthen negotiations during loan workouts. The ability to meet repayment obligations promptly can also foster goodwill with lenders and increase the likelihood of favorable workout terms.
  3. Improved Financial Stability: Loan workouts aim to provide businesses with a pathway to regain financial stability. By utilizing invoice factoring, businesses can stabilize their cash flow, reduce outstanding debts, and address immediate financial challenges. This stability is crucial for successfully navigating loan workouts and implementing the agreed-upon terms effectively.
  4. Reduction of Additional Debt: Loan workouts often involve restructuring existing debts or negotiating new repayment terms. By incorporating invoice factoring, businesses can reduce their reliance on additional borrowing or accumulating new debt. Instead, they can utilize the funds generated through invoice factoring to fulfill loan repayment obligations, potentially minimizing the overall debt burden.
  5. Expert Guidance: Engaging with a reputable invoice factoring company can provide businesses with access to financial expertise and guidance during loan workouts. These professionals can offer insights on cash flow management, debt restructuring, and financial planning, helping businesses make informed decisions throughout the workout process.

While invoice factoring can be a valuable tool in loan workouts, it is crucial for businesses to work closely with their lenders and seek guidance from financial advisors and legal professionals. They can provide comprehensive advice and ensure that invoice factoring is integrated effectively into the overall workout strategy, considering all legal and financial implications.

By leveraging the benefits of invoice factoring, businesses can strengthen their financial position, improve cash flow, and navigate loan workouts with greater confidence and success.

Universal Funding has decades of experience dealing with banks and lenders in situations requiring loan workouts. We’ll use our expertise to resolve these issues for you.

Want to learn more about loan workouts?
Call to speak to a factoring specialist (800) 405-6035.