Take Factoring to the Bank

May 31, 2023 | Blog

 

Realistically, a banker and factor often target the same general client: a growing business in need of cash flow.

But if we dig into the nuances of our respective business models, it turns out there are situations and circumstances where it is mutually beneficial to work together instead of against each other.

Have you ever met a prospective client that you really liked, but just couldn’t get their loan approved? Or successfully worked with a client for years, and then they hit a bump in the road? This can happen when the business is:

• too new
• or growing too fast (not stable)
• overextended
• undesirable receivable concentrations
• under-capitalized

As an experienced banker, you know the potential for profitability when you see it, even if loan committee or underwriting has a different, possibly more rigid, set of criteria. When you think long-term, you’ve probably positioned yourself as a relationship-builder and a professional resource to business owners. It would be counter-intuitive to turn a prospect away and it could damage the relationship to send a client to workout.

So, what are your options?

When Factoring Benefits the Banker and the Bank

When your prospect or client needs cash and you’re unable to provide it, refer them to Sky Business Credit for factoring. We can help them:

• Improve cash flow
• on faster terms
• to grow the business

When a business owner gets the cash they need, quickly, they are empowered to manage their business effectively and efficiently—they can grow. As the referring professional, their feelings of empowerment will originate with you. This is quite powerful in building loyalty and relationship longevity and can benefit you in the long run.

Acknowledging the Risk

There is always risk in referring potential business to an outside party, and we want to validate that concern. That’s why it’s important to highlight where factoring and banking differ, particularly in the ways you can retain other aspects of the banking relationship:

• Factoring provides cash; it doesn’t hold cash. The client will still need depository accounts and have day-to-day needs that can only be met by a bank.
• A growing business is a dynamic business. Future financial needs may and likely will evolve. As a trusted resource that already helped the business grow, you will be top of mind.

Focusing on the Long Game

Sky’s goal is to help businesses grow, and growth is a stepping stone to becoming bankable. If we can help the business grow to two years of profitability and a level of equity in a company that balances out the line of credit it may be offered, we know it potentially becomes a more desirable banking client. If we work together, we can both win.

If you’re evaluating a deal, we can be a resource. Please don’t hesitate to contact us.