When you begin to inquire about accounts receivable financing one of the first questions we ask is – do you currently have a bank loan? If the answer is no, there should be no impediments to setting up your invoice financing. But if the answer is yes, then we have a follow up question, how is the loan secured?
Legally you cannot have a bank loan that is secured by accounts and use factoring in parallel. The factoring company must have first security position on the accounts receivable it is purchasing for the purposes of making advances. Additionally since you have a loan contract with the bank, you would be putting the loan in jeopardy by attempting to sell off any assets without their permission. An intercreditor agreement may be arranged with the secured lender. It allows both secured parties to isolate parts of the assets to hold as collateral..
The other more prevalent method is to take out the previous lender, paying any outstanding balances with the initial proceeds from the first invoice advances. This usually is a very transparent and easy transition that allows you to continue to have the working capital you need to run your business.