Factoring is defined as the purchasing of a company's accounts receivable on a non-recourse basis. Asset based lending may be the best source of working capital for companies in turnaround where traditional bank loans may not be available or for new and rapidly growing companies where high levels of growth cause the business cycle to outpace the collection of receivables. Long Term Debt Long term debt is one of the initial financing avenues a company should pursue. Most long term debt takes on the form of a loan where the interest and part of the principal are paid back in equal installments over the life of the loan. Then, as funds are generated later in the business cycle, the loan is repaid.
Most commercial banks offer a revolving line of credit, where a fixed amount is available.
One advantage of a line of credit is that the no interest is accrued until the funds are withdrawn, but the line is immediately available for the company's cash flow needs. Credit A letter of credit is a guarantee from a bank that a specific obligation will be honored by the bank if the borrower fails to pay. Letters of credit can be useful when dealing with new vendors who may not be assured of a company's credit worthiness. The bank would then offer a letter of credit as an assurance to the vendor of payment. Although no funds are paid by the bank, the credit requirements for a line of credit and a letter of credit are similar.