SME credit or factoring: which product to choose?

Nowadays, there are many options for companies to finance themselves: loans, investors, crowdfunding, factoring, leasing, etc. We would like to introduce two of the common financing options to you, firstly the relatively well-known SME loan and secondly the still new alternative factoring. What are the special features, differences, advantages, disadvantages and how do you get the best offer for your corporate finance?

 

Factoring and credit: different models

Factoring and credit: different models

When it comes to financing measures, it is important to know that different models work differently. SME credit and factoring are both variants of debt financing, but they work relatively differently. The SME loan is one-time lending of bank funds to an SME, while factoring is a relatively complex product for ongoing corporate finance. You will find the details in the further course of the article.

 

Credit and factoring – how it works

Credit and factoring - how it works

An SME loan is basically nothing more than a loan to a company, for which a monthly amortization plus interest is due. In order to obtain an SME loan, the creditworthiness of the company is crucial: if it is correct, there is nothing standing in the way of a loan of a certain amount. There are a large number of credit banks in Switzerland, which can make it difficult to get the best deal. We, therefore, recommend that you contact an independent broker such as kreditzins.ch, who can obtain and compare offers from various banks for you.

Factoring, on the other hand, is a relatively new financing option that consists of several products (basically these are invoice financing, debt collection management, and credit insurance). At its core, factoring is an ongoing pre-financing of your sales invoices, which means that a company can get liquidity faster and with less effort. In detail, the product works like this:

  • A company issues an invoice to its customer for goods or services
  • A third party, the factor, receives a copy of the invoice
  • The factor transfers 90% of the invoice amount to the company (minus a commission)
  • The customer then pays his invoice to the factor. The factor transfers the missing 10% to the company upon receipt of payment

However, factoring basically includes more than just this invoice financing service. Visit the page of Business Factoring, the new factoring expert in Switzerland.

 

Factoring or SME credit – which is better?

Factoring or SME credit - which is better?

It cannot be said in general which product is generally better for companies. The choice depends primarily on the company situation and the individual requirements of the customers, but there are some factors that may direct the decision in one direction.

Who decides for the loan:

  • Short-term liquidity needed
  • Has enough own funds
  • Is willing to pay monthly installments
  • Wants and can use the money received

Who decides for factoring:

  • Would like long-term funding
  • Rather low own funds
  • Would like additional protection for his business (credit insurance)
  • Wants to simplify internal processes (debt collection management)
  • By supporting a factor wants to improve the company’s finances in the long term

 

Advice necessary

Advice necessary

With the many different financing options on the current Swiss market, it can be difficult for young entrepreneurs, but also for experienced company managers, to find their way around. We, therefore, recommend that you contact a specialist in corporate finance. Such consultants, who work for independent financial intermediaries, offer all entrepreneurs who want to improve their business situation customer-oriented solutions. Through an in-depth and neutral analysis of your dossier, you can evaluate the company’s situation, suggest various alternatives, and search for suitable offers according to the wishes of the customer. Financial advisors often have good contact with financial institutions, which is why they often succeed in getting the best deals on the market!