• Accel Business Funding

Which is better for you: Asset-Based Lending or Invoice Factoring?

Why asset-based lending may be the better solution for your business

For companies that do not qualify for a traditional bank loan, they have the option of alternative financing. In industries that are invoice heavy, the two most popular options are asset-based lending (ABL) and invoice factoring, both of which Accel Business Funding specializes in.

Both options heavily rely on the assets of the borrower but are structured in different ways in terms of how they operate, borrowing amounts, and costs. In asset-based lending, the invoices will typically serve as collateral for a line of credit or term loan, while in invoice factoring, the borrower will sell the invoice to a factor in exchange for a cash advance.

In the end, asset-based lending is a superior option for companies that have a variety of asset types and are looking for a cheaper and more flexible solution than invoice factoring.

3 ways in which asset-based lending is better than traditional factoring:

1) Bigger Borrowing Base

A major advantage of asset-based lending over invoice factoring is that the borrower will typically have access to more capital to borrow. While invoice factoring is solely based on the invoices being sold, ABL looks at a variety of assets to serve as collateral to build a total facility. Since this facility is built on the different types of collateral being provided, it will be larger than just the invoice portion that factoring companies, such as Accel Business Funding, would solely be focusing on.

While both alternative financing options are available to similar types of clients, asset-based lending provides the most flexibility and cost-effective way of providing capital to businesses that need funding.

2) Structure

One of the crucial differences between the two types of financing is the structure in which the borrower takes out and pays back their loan. In factoring, the borrower will sell individual invoices to the lender, such as Accel Business Funding, for an advanced amount of cash, which can be as high as 85% of the total invoice value. Then as the customer pays back the invoice, the lender will collect the advance amount, take a fee, and then return the remainder to the borrower.

On the other hand, asset-based lenders, such as Accel Business Funding, will look at accounts receivables and other assets such as inventory, equipment, or real estate, to determine the borrowing base.

The other benefit of asset-based line of credit is that if the business does not need the capital at the moment, the owner will not be charged an interest rate until they withdraw the cash. Being charged only when money is withdrawn means that the line of credit is more flexible than the invoice sale in factoring.

3) Non-Notification

Another important aspect for both types of financing is how they interact with the company’s customers who have the outstanding invoices, which is known as “notification”. Invoice factoring is a notification type of financing. Customers that have their invoices sold to a lender will receive notice that a 3rd party is now handling the invoice and that the 3rd party will be the one to receive the repayment. Some businesses might view this as a negative as they do not want their customers worrying about the implications of their invoice being sold.

Asset-based lending is a non-notification type of financing because instead of selling your invoices, you are collateralizing them.

Accel Business Funding has helped many businesses through our asset-based lending and invoice factoring services.


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