08/19/2026
Tip of The Month
Is Factoring a Viable Option for Your Business?
Working capital, debt, and equity are key factors in determining surety credit for small businesses. Lately, we’ve seen an increasing number of businesses turning to factoring companies for loans—an option that can have significant drawbacks on a company’s balance sheet and cash flow.
Factoring, or borrowing against receivables, can sometimes signal financial distress to lenders and sureties. These arrangements often come with high-interest rates and require direct access to your bank account for daily, weekly, or monthly withdrawals—regardless of whether you’ve been paid for your projects. Before committing to factoring, I strongly encourage thorough research and a clear understanding of its long-term impact on your business.
Fortunately, there are alternative funding sources worth exploring. Consider SBA lenders, CDFI banks, microenterprise lenders, or community advantage lenders, which may offer more flexible and sustainable financing options. Additionally, surety companies may view factoring as an added risk, so it’s essential to discuss this with your agent before moving forward.