Exploring Merchant Cash Advance Versus Invoice Factoring

Getting a Small Business Loan with Bad Credit in 2021

09:33 04 March in Blog, Business Funding

One of the consequences of COVID-19 is the negative impact on the credit of small and mid-sized business entities. Lending institutions are generally risk-averse and the pandemic has only further pushed them to implement more stringent underwriting standards focused on the creditworthiness of borrowers.  This creates a problem as more and more businesses do not qualify for a traditional line of credit. 

Since many businesses were forced to completely — or partially — close down from early 2020, with some even closed or operating at significantly limited capacity well into 2021, business owners are now grappling with the effects that limited income and slower cash flow have had on their credit. In fact, according to McKinsey Insights, lenders will be forced to take a deeper look at credit criteria moving forward. One statement stands as a stark reminder of this crisis on the finances of businesses “From the perspective of financial institutions, the conditions that the COVID-19 crisis triggered have specific implications for managing and mitigating credit risk.”

Securing Financing Amid Pandemic Concerns

Thousands of small business owners were eligible for, and received, Paycheck Protection Program (PPP) funding to help them through the pandemic. For most, however, this capital only helped them maintain operations for a short period of time. Many business owners would never have believed that one year into the pandemic they would still be operating at limited capacity and still uncertain about a return to full operations. 

While vaccines and other mitigation factors have lessened the overall human impact of the pandemic, the long-term financial impact on businesses is still largely unknown. Some businesses are faced with declining credit ratings meaning they could face steeper than normal challenges securing funding.

Alternative Funding Solutions

A better alternative for businesses is to use their accounts receivable to gain access to capital.  Invoice factoring is able to provide immediate working capital and liquidity.  Funding is not dependent on the creditworthiness of your business.  Instead, the creditworthiness of your customers provides the basis for determining whether you can factor your invoices. 

Typically, businesses are forced to wait 30, 60, or even 90 days before they are paid for the products or services they provide.  Factoring turns those invoices into cash — nearly immediate cash. This allows business owners to have the necessary cash on hand to sustain operations and meet obligations to their customers, while not depending on the financial institution for a line of credit.

Some of the advantages of invoice factoring include:

  • Faster than business loans — in most cases, rather than waiting weeks, or months for bank approvals, you can have cash in your bank account within days of accepting a factoring contract and having your customers approved.
  • Flexibility and control — factor all of your invoices or only specific ones.  You select which customers you’d like to factor.  You may elect to use a process called “spot factoring” which is a funding method where you simply take a valuable invoice and turn it into nearly immediate cash with no long-term agreement.  This is common when a company has a single one-time need for immediate capital to get them over a period of slower cash flow that is not anticipated to continue.
  • Strengthen or repair your credit profile — with sufficient cash flow you will be able to meet vendor and supplier payment commitments.  As you build up positive credit history by paying in full and on time, it will gradually boost your business credit score.


Qualifying for funding is relatively easy. The key requirement is to have invoices that are payable by dependable and creditworthy customers.  Whether you need immediate capital, or you need regular access to cash, invoice factoring can help you meet your financial obligations. 

Customized Solutions Work Best

This is one reason more businesses are turning to Capstone Capital Group. Regardless of what your business credit situation is, your financing needs are not the same as every other small business. We do not try to take a one-size-fits-all approach to capital since every business operates differently and has different cash demands.  We take the time to understand your business model, your goals, and your overall financial situation. We then work on a customized solution that suits your financing needs. We understand the importance of cash flow to the long-term success of your business and we are committed to providing solutions to help you succeed. 

Capstone is here to help: Let us work with you today to help you find the best solution to your cash needs without taking on more debt. Whether you are facing an immediate one-time need for cash to secure a contract, or you are in need of a long-term solution to cash flow, contact our skilled team of representatives today and let us work with you to find the best options for your funding needs.

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