Asset-Based Lending or Factoring: Which is the Choice for You?

Posted - September 18, 2019
Asset-Based Lending

Asset-based lending and invoice factoring are excellent funding opportunities for businesses of all shapes and sizes. However, the options aren’t one-size-fits-all. The two alternative financing methods have different processes that can influence the decision to use them:

  • Asset-Based Lending: The process of putting up physical company assets as collateral in return for a loan.
  • Invoice Factoring: This process involves a business selling their accounts receivable to a factoring company in exchange for quick payment.

Goodman Capital Finance offers both financing options to our clients but realizes that every business has different needs. Here are some of the key differences between asset-based lending and factoring that will help you make the best decision for your business financing.

Risk Level Plays a Large Difference

When seeking financing, the general risk is something a business needs to look out for. Younger businesses that can’t acquire traditional loans may not have the collateral available to put up for an asset-based loan.

Thus, invoice factoring lowers the risk for a company in need of funds because it relies on the credit of the business’ customers, and not the business itself. Once the business sells off the AR, they almost instantly get a good chunk of the funds they need, with the rest, minus a fee rolling in after the debt has been paid. Therefore, the risk involved really rests on the lender ensuring the invoices get paid off.

The Size of Your Loan Matters More in Asset-Based Lending

Asset-based loans usually have a minimum base of how much can be borrowed. This number isn’t always feasible for smaller companies, yet provides a great opportunity for established brands on the cusp of being “bankable.”

Invoice factoring doesn’t have a minimum requirement, making this aspect of the model appealing to small businesses and local startups.

Things to Consider

The final cost of either financing option is a consideration for a business owner. The biggest consideration isn’t the cost as much as it is, what is the value of having someone check credit on my customers before I sell to them and with working capital how can I grow my business.  With factoring, the fee is determined by the invoice amount and can range between 1 and 2 percent of the invoice. So, once the invoice is completely paid, the business that sold the AR gets the full amount sans fee. Unlike with asset-based loans, there is no annual percentage rate involved, just a flat fee.

So, if you’re wanting quick payment and are okay giving up some of your invoice for the service, invoice factoring may be an affordable solution for you.

A professional financial team will ultimately be able to guide you through your options and help you truly determine which method would be beneficial to your business at its current stage.


When you opt for the factoring route, keep in mind that this is a transaction that doesn’t come with the monthly payments that asset-based lending requires. This allows you to be flexible about when you use this option and prevents your cash flow from becoming stagnant as receivables increase and you have more AR to sell.

Find Out Which Lending Method is Right for You with Goodman Capital Finance

At Goodman Capital Finance we want your business to acquire the money it needs to push forward. If you’re part of one of the many industries we serve, we have a funding solution for you. Contact us today to talk to an expert and get the funding necessary to take your business to the next level.