Account receivable factoring isn’t going to be available for every small business owner. A start up companies without invoices or customers that is just trying to get formed will need access to other forms of finance. One potential option is your local bank. Local banks are tasked to help small businesses. If the amount required is relatively small, say under $25,000, you might qualify for a signature loan. The loan is made out to the company but you are personally signing for the amount borrowed. The threshold is basically the same as getting a high credit limit credit card. It will probably require a decent personal FICO score (something you don’t necessarily need for factoring.)
In order to secure a signature line of credit proceed like a business owner trying to get a conventional loan. Put together a loan package of documents including; information about your business, a list of customers you have lined up, show what money you have already invested in the business and most importantly how much are you requesting, what are you going to use the capital for, and how do you plan on repaying the loan. Then take your package around to local banks, but don’t be discouraged if a particular business banker turns you down. Go to a different individual and try again. What you are looking for, if your business idea is good enough, is an “internal champion” to help shepherd the loan through the proper channels. Keep going until you find some business banker who believes in you and is willing to go to bat on your behalf.
The critical aspect of securing a small line of credit using your personal credit history as the basis – a signature line – is to make absolutely certain that the bank views this as a personal loan and doesn’t treat it as a loan to the company. You want to make sure that a “Financing Statement” aka “UCC-1” will not be filed by the bank. Most small business owners are unfamiliar with the UCC and how the filing might affect your future access to capital. You can read this article to learn more about this important aspect of commercial finance.