Factoring and SBA Loan

I'm not totally sure, but I use Fleet One factoring. Maybe you can call and ask them.

 

There's a good reason the bank underwriting the SBA line of credit wants first position on your accounts receivables.

But I suspect you already know that.

 

You're not approved for a line of credit. You're approved for a borrowing base with your receivables as the underlying asset.

One problem is that you have already pledged your receivables with a factoring company.

Another problem is that you seem to believe that you can use an asset twice as collateral and are looking for someone to lend you money with an asset you don't own.

A third problem is that you are most likely leveraged to the max and in a desperate attempt to save the sinking ship you want to swap one debt for another.

This creates a huge 2 fold problem...
1- you are swapping a debt instrument that yields ~95% instant access to cash with one that will only yield 80-85% instant cash creating a negative impact on cash flow.
2- More importantly- you don't know what you don't understand.

You can not use receivables to secure 2 loans. There is only 1 position. The only time you could have a 2nd position would be a situation where there is equity left in the asset. For example, if your truck was worth $60,000 but you only owed $20,000. In theory, you could pledge the remaining $40,000 value to secure a 2nd loan.

You don't need to use a factoring co. You chose to. And now you can't reel it in. You need to read the factoring co contract and figure out a way to not use them. You're operating at a loss and believe you can borrow your way out of it.

 

+1 on what @glockwise posted.

I'd add that, if you're seeking financing that requires getting that deep into your business (lien on receivables), you should probably pass on it.

It sounds like you're trying to replace an existing factoring agreement with a line of credit. As you've probably discovered, your factoring company agreement includes some severe timelines and potential penalties for leaving quickly. As in quickly enough to take advantage of the SBA deal you've been offered.

My advice is leave the factoring company on good terms, and two things will happen. 1. You won't get the crap beat out of you with early termination fees and whatnot. 2. When you get to the end of it, you probably won't need to replace it with a line of credit. I started this thread about my experience divorcing a factoring company, and just updated it as well.

It ain't a fast process, and not something that's gonna help much if you're desperate. On the slim chance you are a healthy business, it's a pain free option that just takes persistence and knowing the terms of your factoring agreement as well as they do.

 

I read and read these archived threads about factoring, and the more I read the firmer I feel about resenting the temptation of the quick money. It is aggravating though to wait for the money. I have a constant stack of unpaid invoices that amount to 15K-20K, but It does have a growing tendency. I hate bankers and their swindling tools too much. Wish paying pronto was a virtue for some brokers. Shame!

 

That statement right there disqualifies me from trying to help.