Logically, Factoring is Smarter Than a Loan
If you borrowed $100,000 from a bank at 12%, and your monthly payment was $1,000 per month, at the end of one year you would have had $100,000 in working capital, paid $12,000 in interest, but still owe the ENTIRE $100,000.
If you factored $25,000 per month for 12 months at a 4% discount rate, your monthly fee would be the same $1,000, BUT, at the end of one year you would have had $300,000 in working capital, and owe NOTHING! If you can confidently turn a profit with an infusion of working capital, then the factoring process is a logical transaction for your business to employ.
Bottom Line Proof: The Numbers Speak for Themselves
When a well-run business gets an infusion of working capital, the theory is that profits should increase substantially over the cost of capital. We have seen in the previous section that logically, bank loans are not very cost effective. In addition, they create debt on your balance sheet, and at a high expense. Factoring, however, allows you to grow your business exponentially. In fact, this is possible because the factoring advance line grows as your business grows. The more business you do, the more you can factor, which in turn brings in even more business! In the conservative example below, we will assume a company that does $300,000 in sales could bring in 50% more revenue with a factoring advance of just $100,000. Take a look at the math and compare the bottom lines for yourself:
Net profit nearly doubled because of a simple factoring transaction for this small business. With no debt, no additional fees, interest or charges, in this example, ABC Company was able to show a substantial growth in profit from a small factoring advance. In all likelihood, your margins are better than the example above, but for illustration purposes, we wanted to conservatively show how factoring can help you grow your bottom line dramatically!
Contact Global Factors and Request a Quote for a factoring advance for your business today!