The current economic climate has caused a financing bottleneck when it comes to pursuing invoice factoring. The issue becomes what to do with existing bank financing. A typical scenario we are seeing involves a business that has a line of credit from a bank and needs more capital to grow. By the time they get around to asking for an increased credit limit and the bank figures out whether to approve it, the financial condition of the company begins to decline and with it the offer for increased credit.
Lately bankers are suggesting the company contact a factoring company for additional capital. Unfortunately invoice factoring is available only to companies with a clear U.C.C. (see UCC) The bank has secured all the business assets as collateral for their loan. Now the bank loan must be paid off to free up the collateral in order for the invoice factoring to commence. Here lies the problem, the business is growing but starving for cash, it cannot afford to pay off the old loan, and cannot gain access to more capital.