2 responses

  1. Patrick Zazueta
    June 3, 2013

    No question that there are factoring companies out there that are less than ethical. I started my career in factoring in the early 90’s, went on to other forms of corporate finance and returned to my own consulting company, Huntington Coast Capital (www.huntingtoncoastcapital.com), 2 years ago.

    On the other side of the coin, factoring companies get a bad wrap. In your example above regarding the UCC filing and money required to release it – I am willing to bet that the client had the factoring company conduct a lot of due diligence and work prior to committing to them. Then, down the line a few weeks, elected to take a different route, sticking the factoring company with the bill. This is not uncommon.

    There are two sides to every issue and small business owners need to manage their expectations when looking for a funding partner. If you have disorganized books, lack of experience, huge execution risk, or any mixture of these, you need to have an honest understanding of the type of financing you qualify for.

    Factoring companies are used as bridge financing for the most part, however, the top companies in the industry price their programs very close to bank financing without the scrutiny bank’s conduct. Some companies prefer factoring for the reliability of capital. Banks do not have an interest in small business. They have an interest in holding your deposits and having their loans insured through various SBA programs. They are not on the side of small business.

    Factoring companies, for all their imperfections, have an entrepreneurial approach and provide financing where banks will not.

    Just my two cents….

  2. David
    July 12, 2014

    The commercial finance industry is made up of a number of kinds of companies including asset-based lenders, factoring companies, leasing companies, and a few specialty finance companies. The industry is huge, with estimates of annual transactions funded exceeding $1 trillion dollars in the U.S. The industry is made up of some regulated entities (banks), but probably 75-80% of the industry is not regulated.

    The potential borrower had talked to and made application to the factoring company but chose not to use them. The company kept a copy of an application they made to the factoring company but couldn’t find any language on the application that authorized the factoring company to file a UCC-1 against them.

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