Question 1

Can I have both a line of credit and factor at the same time?

Accepted Answer

Yes, with an intercreditor agreement carving out which collateral each lender has priority on. Common structure: bank on inventory and equipment, factor on AR. We negotiate the intercreditor as part of onboarding so nothing surprises your banker.

Question 2

Is factoring more expensive than a bank line of credit?

Accepted Answer

Per dollar advanced, usually yes—factoring runs 1.5%–3.5% per invoice versus prime + 1%–3% APR on a bank line. But cost of capital only matters against the cost of the alternative: turned-down orders, late payroll, or giving up equity. Most growing shops factor for 12–36 months to bridge to bank eligibility.

Question 3

Will factoring hurt my ability to get a bank line later?

Accepted Answer

The opposite. A year of factoring with clean AR reporting demonstrates receivables discipline and often accelerates a bank's underwriting when you're ready to graduate.

Question 4

What DSCR does a bank actually want to see?

Accepted Answer

Most conventional lines want 1.25× debt service coverage at minimum, and 1.35×–1.50× for a comfortable renewal. If your trailing twelve months is under that, factoring bridges you while EBITDA rebuilds.

Question 5

What are the typical bank covenants I'd have to hit?

Accepted Answer

Minimum DSCR, minimum tangible net worth, a leverage ceiling (often 3.0×–4.0× debt/EBITDA), and quarterly financial reporting. Trip a covenant and the bank can freeze the line or call it. Factoring has no financial covenants—just weekly AR aging.

Question 6

Does a bank line show up as debt on my balance sheet?

Accepted Answer

Yes—draws sit on the balance sheet as short-term debt. Factoring is treated as a sale of receivables under most GAAP structures, so it doesn't add debt. That difference matters if you're being watched by a bonding company, an investor, or another lender.

Question 7

How fast can each one actually fund?

Accepted Answer

A new factoring facility typically closes in 5–10 business days, with first funding a few days after. A new bank line usually takes 30–90 days from application to first draw, and 60+ days if it's a new banking relationship.

	Invoice Factoring	Bank Line of Credit
Approval time	3–7 days	30–90 days
Approval basis	Your customer's credit	Your credit, DSCR, and covenants
Typical cost	1.5%–3.5% of invoice value	Prime + 1%–3% APR
Sits on balance sheet as debt?	No (asset sale)	Yes
Grows with sales?	Yes, automatically	Only at renewal
Covenants / reporting	Light — AR aging weekly	Heavy — quarterly covenants
Personal guarantee	Validity guarantee	Full PG
Startup / turnaround OK?	Yes	No

Invoice Factoring vs. Bank Line of Credit

Side by side

When Invoice Factoring is the right call

When Bank Line of Credit is the right call

Frequently Asked Questions

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