Healthcare Staffing Funding - Bank Loan or Accounts Receivable Factoring?

When prospective healthcare staffing businessesare able to look past the above criteria because their
compare factoring fees to bank lending rates, factoringdecisions are based off of a prospect's customers'
almost always seems more expensive. Oftentimes,ability to pay. So it's very possible for a business that
factoring prospects annualize the percentage chargedhas creditworthy customers to work with a healthcare
by factors, extrapolating three percent per month tostaffing factoring company even though they have
an interest rate of 36 percent per year. In the world ofbeen previously turned down for a traditional bank loan.
healthcare staffing financing, this scenario is like- The loan process with a bank is time-consuming and
comparing apples to oranges.cumbersome, and it could take weeks or even months
When comparing a bank loan with invoice factoring, it'sto receive the loan proceeds. Whereas a factoring
important to keep a few things in mind:firm's application and approval process can take less
- A factor does not loan money like a bank does.than a week, and factors have an ongoing ability to
Rather, a healthcare staffing accounts receivableapprove additional lines of credit quickly.
factor purchases invoices at a discounted rate.- Oftentimes, a bank loan requires collateral in addition
Factoring is a form of short-term funding, so a discountto a company's accounts receivable. The only
rate should not be converted to an interest rate. Forcollateral that a factor requires is the company's
example, some firms offer a two percent discountaccounts receivable. A bank will most likely require
(2% for net 10) for quick payment. In a year, there arebusiness owners to personally guarantee the loan as
roughly 36 10-day periods. Using the annualizedwell, and factoring companies won't always require a
percentage parallel, that comes out to 72% "interest."personal guarantee to advance money.
Are these companies really paying 72% for quick- Taking out a business loan creates debt on a
payment? No, and healthcare staffing factoringcompany's balance sheet, and credit ratings go down
companies don't earn 36% interest either.because of loan limitations. On the other hand,
- Moreover, a factor is continuously advancing andhealthcare staffing funding through a factor increases
collecting funds, compared to a bank that provides thecredit ratings by creating better cash flow and helping
money only one time, the day that the loan is received.the company pay their bills promptly.
An accounts receivable factor has the ability to grow- Whereas banks only loan money, there are a
as its clients grow. Once a company uses the fundsmultitude of services that factoring companies provide
from a bank loan or exceeds its credit limit, there's littletheir clients in addition to ongoing funding. Some of
room for it to grow.these supplementary services include: posting
- Banks approve business loans or lines of creditpayments, dispersing reports, handling collections and
based on a company's historical operating and financialreviewing credit for their customers' clients.
performance, a factor's main criteria is theWhen looking at the big picture, entrepreneurs have to
creditworthiness of a prospect's customers. Banksweigh the costs of factoring against not having
tend to shy away from business owners who are justimmediate cash. More often than not, the decision
starting up, going through seasonal growth, have badcomes down to either selling the accounts receivable
personal credit or have too much concentration ofor putting up with crippling cash flow problems and
their sales with one or two customers. Many factorsmissed sales opportunities.