Invoice factoring Loans with Bad Credit
Invoice factoring, or getting capital upfront against unpaid accounts receivable, can be a valuable source for businesses needing a cash infusion. Invoice factoring lenders will essentially take your outstanding invoices and serve as the main point of contact to collect funds, taking a fee and percentage off the top. In exchange, you get the cash you need to cover those expenses, purchase equipment, or help your business grow or scale.
One of the benefits of invoice factoring, compared with more traditional business loans, is that you can qualify for an invoice factoring loan with no credit check and if you have low or bad credit. However, the flip side is that invoice factoring loan interest rates can be high, as can associated fees.
Bad Credit Effects on Invoice Factoring
A bad credit score might not affect your ability to get an invoice-factoring loan. Many invoice factoring lenders overlook your personal or business credit score or history. It doesn’t matter to them whether you have bad credit. They look most closely at your accounts receivable. So the risk the invoice factoring lender is taking is not so much with your business as it is with your customers who owe you payments. Bad credit isn’t a deterrent unless your customers are also the bearers of a bad credit history.
How to Get An Invoice Factoring Loan with Bad Credit
Knowing that you can get an invoice factoring loan even if your business has bad credit is reassuring. The process for applying for an invoice factoring loan, regardless of your credit score or history, is the same. First, could you do your homework to understand your invoice factoring lending options?
You would then proceed through the application process, which includes providing documentation for your business revenues and any outstanding invoices for that you have not yet collected payments. Typically, an invoice factoring lender will consider invoices that are between 30 and 90 days net due, and they will determine how much upfront capital they are willing to provide and at what cost (in terms of percentage taken off the total balance or per invoice and fees).
Once you agree to the terms offered, funds can come through from the invoice factoring lender to your business quite quickly, whether in part or whole.
How do lenders evaluate invoice factoring?
While invoice factoring lenders will not look at your credit history, they may look at the creditworthiness of your customers. After all, it’s your customers they are collecting funds from, and they want to determine the risk profile of taking your customers on as a business venture. If your customers have a history of not paying invoices or else paying them late or inconsistently, you may wind up with higher interest and fees or even getting denied the invoice factoring capital. Similarly, while an invoice factoring lender may not need to check your business credit, they may run credit checks on your customers. If your customers have a history of bad credit, it is a red flag for the invoice factoring lender and may impact the terms of the agreement as well.
Invoice Factoring Loan Options for No Credit
In addition to low or bad credit, businesses with little to no established credit can still qualify for an invoice factoring loan. You would go through the same process as businesses applying for invoice factoring business loans with bad or good credit. You would provide evidence of your accounts receivable, and the invoice factoring loan company will review eligibility and share the approved terms of the agreement.
Interest rates and fees can tend to be higher with certain lenders, and your options may be more limited if you have bad or no credit, so keep in mind what the total cost of doing business with an invoice factoring lender might be. It’s helpful to think about the long-term impact on your business, your ability to repay, and what you might be losing by forgoing collecting unpaid fees through a third party that will take some off the top. Still, your short-term capital needs may outweigh the long-term compromise.
Some of the top invoice factoring companies that do not require a credit check include:
- Bluevine: Factoring loans offered up to $5 million with interest rates as low as 0.25% and approval as low as 24 hours.
- Resolve: Offers up to a 90% advance on invoices with cash in as little as one day and fees of around 2.6% on average.
- Riviera Finance: Funds 95% of invoices, including guarantees for ones that might not get paid and funding in 24 hours or less.
- TCI Business Capital: Offers fast approvals, easy onboarding, and month-to-month arrangements for a fee.
Invoice factoring loans can be an excellent option for small businesses needing capital quickly if they have unpaid invoices from clients or customers. Invoice factoring can be an option for small businesses with low or bad credit when more traditional business loans aren’t an option due to eligibility. Consider resources like BusinessLoans.com to help you comparison shop for the invoice factoring lender that is right for you and your business.
Yes. You can get an invoice factory loan with bad credit. Invoice factors tend to look at accounts receivable more than credit score or history to determine eligibility.
Yes, interest rates can get high if you get an invoice factoring loan with bad credit.