When you are considering whether you should try to get a conventional line of credit from a bank or use accounts receivable factoring to grow your business. Consider this; when you get a loan from a bank, the amount of credit will always be limited to the historical ability to pay. Will the monthly payment leave enough profit to continue to run the business?
But rarely do we find a business owner with the dedicated discipline to pull money out of the bank line and then replace it when they get paid on an invoice. Essentially that is what a line of credit is for; to self factor your own receivables.
Without financial discipline, the line of credit starts to grow outstanding up over time when cash flow is tight. After a while the line reaches its credit limit, if you are unable to keep up with the payments and the bank no longer feels your company will qualify for the credit limit the bank will move the facility into the workout department and ultimately will take the outstanding balance and term it out. This means the line of credit is tapped out and the bank replaces it with a business mortgage and monthly payments. Now there is nowhere to go to get more capital until the outstanding note is paid in full.
In contrast, a factoring company is an excellent alternative for a company in a growth mode. By factoring your invoices the discipline is built in to the transaction and there is usually no top end credit limit. As long as you grow and have fresh invoices you can always get funded. And when the invoice is paid by your customer, the transaction is completed which means no loan to figure out how to pay off someday.