Is factoring still a viable option with interest rates at historical lows? To answer this question, we have to look at the overall business environment. Let’s dive right in and see if factoring is a solution that can help you and your business.
The credit marketplace still remains very tight and difficult to dip into. The modest gains in the economy over the past year or so have not given banks and other lending institutions much comfort to part with “risk” capital. Costs of healthcare insurance for employees, corporate tax increases and the Federal Government’s regulatory insanity have insured that only the strongest of balance sheets and income statements will pass the loan underwriter’s scrutiny. Banks can borrow money from the US Government at less than one percent (1%) interest and then take that money and immediately buy government bonds yielding two percent (2%) or more and have a guaranteed profit, no risk and no capital exposure–a very tough scenario for borrowers to compete with. With discussion of an increase in the minimum wage which potentially removes additional dollars from the bottom line, lenders ask themselves “what will this borrower’s financial condition be like in six months, and will they have the cash flow to make payments of interest and principal on the loan for which they are now applying?”
So, it comes down to determining if factoring is right based on a wide variety of conditions and scenarios. Is factoring still a viable option? Absolutely. At Xynergy Capital Group have seen a consistently growing influx of applications from companies that in past decades would have been bank qualified. In conversations with other factors, they tell us the same thing. With interest rates this low, factors should be driven out of the credit markets, but borrowers have to qualify for such low cost of money and it is apparent that traditional borrowing is harder than ever to accomplish. Factoring is a practical lending option and it is here to stay!
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