How to Finance a Company With Bad Credit

It can be tough on a business to get financing to access working capital when they have bad credit. Traditional lenders like banks will look at the business’s cash flow, profitability, and credit history before approving a bank loan. If a business’s credit or the business owner’s credit is bad, traditional financing options from banks or other lenders are nearly impossible to find or have extremely high-interest rates. Invoice financing or accounts receivable financing is an excellent option for businesses with bad credit and new companies with little to no credit.

Invoice factoring provides funding for businesses with bad credit

Invoice financing, also known as invoice factoring, is an affordable solution for cash flow issues and prevention for businesses with bad credit scores. With invoice financing, there is no new debt; therefore, no repayment and no interest rates. It merely gives you access to your working capital and builds up your cash flow based on your customer’s creditworthiness. Instead of looking at the business or business owners’ credit like traditional lenders, invoice financing looks at the strength of your customers’ credit, as the customer pays the invoice factoring company the invoice amount at the end of the payment term.

Benefits of invoice factoring for businesses with bad credit

A significant benefit is that invoice factoring helps businesses build up or establish their credit by providing consistent cash flow to stay on top of operational expenses or paying off existing debts. These cash advances can help you recover or build your business’s financial standing.

Invoice factoring also provides businesses with free credit checks on all their customers. This, in turn, will prevent businesses from working with bad debtors and risking not getting paid. If the customer had good creditworthiness, the factoring company will likely purchase the unpaid invoices and advance the money, minus the factoring fee.

How does invoice factoring work for a business with bad credit?

Unlike a business loan or a line of credit from a bank, businesses receive financing from a factoring company from purchasing the outstanding invoices of a creditworthy customer and advancing a percentage of the cash upfront. Porter Capital advances up to 97% of the total invoice to its client within one business day. Once the customer pays back the factor at the end of the payment term, the factor advances the rest of the invoice to its client, less the factoring fee.

There is usually a lengthy process to get approved when trying to get a bank loan that could take months before you see any cash. Invoice financing approves you in as little as one business day, and you can start funding invoices instantly. The cash advance from factoring your invoices provides you with immediate access to your working capital, instead of having to wait for extended periods to get paid. So, if you have unpaid invoices just sitting there, invoice factoring can advance you the money for them right away.