In a recent article by Marc Prosser (fitsmallbusiness.com) where he interviews Rohit Arora, founder of Biz2Credit, the numbers are revealed about who is approving business loans and other methods of financing.
Big Banks: 17 – 19%
Small Banks: 44 – 51 %
Credit Unions: 43 – 50%
Alternative Finance: 63 – 67%
Institutional Lenders: 57 – 68%
While alternative financiers and institutional lenders have the highest approval rates, they only account for 30% of the financed deals. Invoice factoring companies fit into the gray space between Institutional Lenders and Alternative Lenders but they differ from most lenders in those spaces. First off, factoring companies do not facilitate loans, they are not technically lenders. They provide invoice factoring, which is a financing solution that provides advances against open invoices in accounts receivable. The article indicates that rates from alternative lenders are in the 50% range, which can be cost prohibitive. Invoice factoring offers much lower rates in the 1%-6% range. Taking the numbers provided in this article, let’s compare rates and add invoice factoring companies into the mix.
What this comparison visualizes for us is that factoring companies have high approval rates and low factoring rates which makes for an ideal financing option that is not discussed in the article.