The Benefits of Combining Factoring with Other Financing

Can you still get a loan if you’re already using factoring? What if you already have a loan—can you qualify for factoring? These are very common questions. After all, most businesses don’t have their needs fully met through a single funding source. Moreover, each funding method comes with unique benefits and drawbacks and is suited to specific situations. The short answer to these questions is yes, combining factoring with other financing options is usually an option. However, it depends on which options you’re leveraging and how your agreements are structured. Below, we’ll explore some of the benefits of combining factoring with other financing solutions and cover what you need to know if you’re considering some of the most common pairings. 

How Factoring Fits into a Multi-Financing Strategy

Factoring is often thought of as a standalone solution, but it’s also a valuable tool when integrated into a broader financial strategy. Below, we’ll take a look at some common uses and benefits.

Use Factoring to Support Loan Repayment

Business loans provide a structured way to finance growth, purchase equipment, or cover other major expenses. However, monthly payments can strain cash flow, especially when customer invoices take weeks or even months to get paid. More than one-third of small businesses have trouble making payments on debt, according to the latest Small Business Credit Survey. That’s where factoring for loan repayment comes in.

How Factoring Frees Up Capital for Loan Repayment

Factoring converts your unpaid invoices into immediate working capital, giving you quick access to the funds tied up in your accounts receivable. By using factoring to free up capital for loan repayment, you ensure that cash is available when it’s time to make loan payments, rather than waiting on slow-paying customers. Here’s how it works.

• Sell Your Unpaid Invoices: Instead of waiting 30 to 90 days for customer payments, you receive an advance. This is typically 80 to 95 percent of the invoice value and can sometimes be received on the same day you submit your invoice.
• Factor Holds a Reserve: The factoring company retains a small percentage of the invoice until your customer pays.
• Customer Pays the Invoice: Once the customer fulfills the invoice, the factor releases the remaining balance, minus their fee.
• Consistent Cash Flow Covers Loan Repayments: With reliable access to capital, you can make timely loan payments and avoid financial strain.

When to Use Factoring for Loan Support

• Cash Flow Gaps Are an Issue: If your customers take 30 or more days to pay, factoring ensures funds are available for scheduled loan payments.
• Loan Payments Are Fixed: If you have predictable monthly loan obligations, factoring keeps your cash flow steady, making payments easier to manage.
• On-Time Payments Matter: Avoiding missed loan payments helps maintain your business credit and eligibility for future financing.

Strengthen Credit Access with Factoring

Many businesses struggle to qualify for traditional financing, especially when they have limited credit history or cash flow constraints. In fact, only half of all businesses that apply for financing are fully approved, per the Small Business Credit Report. However, when you’re leveraging factoring for credit availability, it’s easier to access loans, lines of credit, and other financing options.

How Factoring Improves Credit Access

Factoring is not a loan. It’s a funding solution based on your customers’ creditworthiness, not yours. By factoring your invoices, you turn unpaid receivables into immediate cash, strengthening your financial position. This, in turn, can help your business qualify for additional financing.

• Reduces Debt-to-Income Ratio: Lenders assess how much your business carries relative to revenue. Factoring improves this ratio by providing working capital without adding new debt.
• Builds a More Stable Cash Flow: Many lenders hesitate to extend credit to businesses with unpredictable cash flow. Factoring ensures you have steady income, making your business a more attractive candidate for financing.
• Shows Positive Payment History: Factoring enables you to stay current on financial obligations, such as supplier payments and existing loans, which strengthens your business credit profile.

When to Use Factoring to Improve Credit Access

• Your Credit History Is Limited: If your business has not yet built a strong credit profile, factoring provides an alternative way to demonstrate financial stability.
• Cash Flow Constraints Are Blocking Loan Approval: Some lenders require proof of steady revenue before extending credit. Factoring ensures you can show consistent income.
• You Need a Bridge to Better Financing: If your business is not yet eligible for a bank loan or line of credit, factoring can help stabilize cash flow while you build creditworthiness.

By improving credit lines with factoring, your business can secure additional financing without taking on unnecessary debt. Factoring serves as a stepping stone, helping you meet lender requirements and unlock greater financial opportunities.

Improve Credit Flexibility with Factoring

Access to credit is essential for business growth, but rigid loan terms and credit limits can create financial bottlenecks. That’s where factoring for credit flexibility comes in. Because factoring provides immediate working capital without increasing debt, it allows businesses to preserve and better manage their existing credit resources.

How Factoring Helps Maintain Business Credit Flexibility

Factoring is a cash flow solution that works alongside traditional credit options, giving your business more financial agility.

• Keeps Credit Lines Open: Factoring provides funding without using up your available credit, so you can reserve bank loans and credit lines for larger, long-term investments.
• Adapts to Business Needs: Unlike traditional loans with fixed repayment schedules, factoring scales with your revenue. The more invoices you generate, the more funding you can access.
• Reduces Reliance on High-Interest Credit: Businesses facing cash shortages often turn to credit cards or short-term loans with high interest rates. Factoring offers a more sustainable way to cover expenses while keeping credit options intact.
• Avoids Negative Credit Impact: Because factoring does not add debt to your balance sheet, it helps you maintain a healthy credit profile, something lenders and suppliers consider when assessing your financial health.

When to Use Factoring for Credit Flexibility

• You Want to Preserve Credit Lines for Larger Investments: Factoring allows you to keep loan and credit card balances low, so they remain available for big-ticket expenses like equipment purchases or facility expansions.
• Your Cash Flow Needs Fluctuate: Businesses with seasonal demand or inconsistent payment cycles benefit from factoring’s ability to scale with revenue.
• You Need an Alternative to High-Interest Borrowing: Factoring provides working capital without increasing liabilities, reducing the need to rely on credit cards or short-term loans.

By understanding how factoring helps maintain business credit flexibility, you can make more strategic financial decisions. Factoring doesn’t just solve immediate cash flow challenges. It positions your business for long-term stability and growth.

Reduce Credit Dependence and Risk with Factoring

Relying too heavily on loans, credit lines, or other borrowed capital can put your business at risk, especially if interest rates rise, lenders tighten their requirements, or credit limits are reduced. By incorporating factoring into your financial strategy, you can reduce credit dependence with factoring and create a more stable funding foundation.

How Factoring Reduces Credit Dependence and Risk

Instead of borrowing money that must be repaid with interest, your business is simply tapping into money it has already earned. This approach helps you mitigate financial risks associated with credit-based financing.

• Minimizes Exposure to Lender Restrictions: Credit lines and loans come with strict eligibility criteria, collateral requirements, and repayment terms. Factoring provides flexible funding without these constraints.
• Reduces Interest and Debt Obligations: Unlike loans and credit cards, factoring does not accumulate interest charges, allowing you to free up capital without adding long-term financial burdens.
• Lowers the Risk of Credit Line Reductions: Banks can lower credit limits or recall loans if your financials change. Factoring ensures you have steady cash flow without the unpredictability of lender decisions.
• Improves Financial Independence: Businesses that rely too much on credit often struggle if lenders pull back or funding sources dry up. Factoring gives you access to working capital that isn’t tied to external credit approvals.

When to Use Factoring to Reduce Credit Source Risk

• You Want to Decrease Reliance on Borrowed Capital: Factoring lets you fund operations using incoming receivables instead of racking up debt.
• You’re Concerned About Market Conditions Impacting Credit: If banks tighten lending standards or reduce credit limits, factoring provides a reliable alternative.
• Your Industry Faces Cyclical or Seasonal Cash Flow Challenges: Factoring ensures you have continuous access to capital, even when revenue fluctuates.

By leveraging factoring to reduce credit source risk, your business becomes less vulnerable to lender decisions and economic downturns. Instead of being at the mercy of changing credit conditions, you maintain direct control over your cash flow.

How Financing Tools Work Together When Scaling Your Business

No single funding method meets all business needs, especially when you’re focused on growth. Whether you’re expanding operations, purchasing new equipment, or managing larger contracts, having access to multiple financing tools for growth ensures your business can scale without running into cash flow constraints.

That’s why diversifying financing tools is a smart strategy. Instead of relying solely on loans, credit lines, or factoring, businesses that customize financing strategies with factoring can create a more adaptable and resilient financial structure.

By diversifying tools to reduce cash flow risks, your business can:

• Maintain Steady Working Capital: Using factoring alongside other funding sources ensures you have ongoing access to cash, even when customer payments are delayed.
• Maximize Financial Leverage: Banks and lenders often assess overall financial health before extending credit. Factoring strengthens your balance sheet by converting invoices into immediate cash without adding debt.
• Match Funding Sources to Business Needs: Different financing tools serve different purposes. Factoring accelerates cash flow, loans provide long-term capital, and credit lines offer flexibility. Combining them allows for a tailored approach.

The key is using multiple financing tools for growth strategically. In the next sections, we’ll explore how factoring works alongside bank loans, credit lines, equipment financing, and bridge financing to help businesses scale while keeping cash flow predictable and sustainable.

Factoring + Bank Loans

Bank loans provide businesses with structured capital for long-term investments, but they aren’t always the best solution for covering short-term cash flow needs. That’s where factoring and business loans work together. By using factoring with traditional loans, your business can maintain financial flexibility while keeping loan funds available for their intended purpose.

How Factoring Supports Bank Loans

When used alongside a loan, factoring ensures you have the cash you need for daily operations without depleting borrowed funds.

• Preserves Loan Capital for Growth: Loans are typically secured for specific uses, such as purchasing equipment or expanding operations. By using factoring to free up loan capital, your business can avoid dipping into these funds for routine expenses like payroll and supplier payments.
• Enhances Loan Repayment Ability: A steady cash flow from factoring makes it easier to meet monthly loan obligations and reduces the risk of missed payments.
• Strengthens Creditworthiness: Lenders look at cash flow stability when assessing financial health. Factoring ensures your business can meet operational costs, making it a more attractive candidate for future financing.

How Collateral Impacts Your Ability to Use Factoring with a Bank Loan

Collateral plays a major role in whether a bank loan combined with factoring is possible. Traditional lenders often require businesses to secure loans with assets like receivables. If a bank has already placed a lien on your invoices, factoring may not be an option unless the lender agrees to a subordination agreement. That means they allow the factoring company to be first in line for invoice payments.

Here’s when factoring and loans can work together:

• If Your Loan Is Secured by Other Assets: If your loan is backed by equipment, real estate, or inventory rather than receivables, factoring remains an option.
• If the Lender Allows Subordination: Some banks will permit factoring if they are willing to take a secondary position on receivables.
• If Your Loan Has No Restrictions on Receivables: Some loans don’t place liens on accounts receivable, making factoring an easy addition to your financing strategy.

When to Use a Bank Loan with Factoring

• You Need Long-Term Growth Capital but Have Short-Term Cash Flow Gaps: Factoring provides immediate working capital while your loan funds remain dedicated to larger investments.
• Your Business Relies on Invoicing with Long Payment Terms: If customers take 30 to 90 days to pay, factoring ensures steady cash flow so you can focus on growth rather than waiting on payments.
• You Want to Strengthen Financial Stability Before Applying for Additional Credit: Factoring keeps your revenue stream predictable, making you a more appealing candidate for future loans.

When structured correctly, combining factoring with traditional loans allows you to leverage both financing tools effectively, ensuring you have access to working capital while keeping loan resources intact for expansion.

Factoring + Credit Lines 

Lines of credit provide businesses with flexible funding, allowing you to borrow as needed and repay as cash flow allows. However, relying too heavily on credit can limit financial flexibility. By combining invoice factoring and business lines of credit, you can maintain access to cash without maxing out your credit limits or increasing debt.

How Factoring and Credit Lines Work Together

Factoring and business lines of credit serve different purposes, but when used strategically, they create a well-rounded financial foundation.

• Preserves Credit Availability: Factoring provides immediate cash flow without using up available credit, ensuring that your credit line remains open for larger or unexpected expenses.
• Reduces Interest Costs: Borrowing from a line of credit incurs interest, while factoring provides upfront cash without long-term debt obligations. Using factoring first minimizes how much you need to borrow.
• Improves Credit Utilization: Lenders evaluate how much of your credit line is in use. Factoring allows businesses to cover expenses without drawing on credit to help you maintain a healthier utilization ratio.
• Offers a Backup During Credit Freezes: Banks can reduce or suspend credit limits due to market conditions or changes in your financials. Factoring ensures you have working capital even if your credit line becomes unavailable.

When to Use Factoring and Credit Lines Together

• You Want to Keep Your Credit Line Available for Emergencies: Factoring provides day-to-day cash flow so you can save your credit line for unexpected expenses or growth opportunities.
• You Need to Avoid Overleveraging: Relying too much on credit can strain financial health. Factoring provides funding without increasing liabilities.
• You’re Facing a Temporary Credit Crunch: If your bank lowers your credit limit or delays approval for an increase, factoring keeps your business running smoothly.

By combining invoice factoring and business lines of credit, you gain a flexible, cost-effective approach to managing cash flow. Factoring ensures you have steady working capital while keeping credit lines available for when they’re truly needed.

Factoring + Equipment Financing

Equipment is a major investment for many businesses, whether it’s trucks for a freight company, heavy machinery for construction, or specialized tools for manufacturing. While equipment financing and factoring serve different roles, they work well together to help businesses secure essential assets without straining cash flow.

How Factoring Supports Equipment Financing

Factoring provides immediate working capital your business can use to supplement financing when purchasing equipment. Here’s how combining factoring with equipment loans creates a stronger financial strategy:

• Boosts Upfront Cash for Down Payments: Equipment loans often require a down payment. Using factoring to increase equipment purchasing power ensures you have cash on hand without diverting funds from daily operations.
• Covers Loan Payments Without Disrupting Cash Flow: Loan repayment schedules are fixed, but revenue cycles aren’t always predictable. Factoring ensures you have steady cash flow so your business can meet its equipment loan obligations without financial strain.
• Reduces Reliance on High-Interest Borrowing: Some businesses use credit cards or short-term loans for equipment purchases. Factoring for equipment purchases provides an alternative source of funds without adding expensive debt.
• Improves Loan Approval Chances: Lenders assess cash flow when approving loans. Factoring stabilizes revenue, so your business is more likely to qualify for favorable financing terms.

When to Use Factoring and Equipment Financing Together

• You Need to Purchase Equipment but Lack Immediate Capital: Factoring accelerates cash flow so you can cover upfront costs without waiting on customer payments.
• You Want to Minimize Loan Debt: Instead of financing the full purchase price, factoring allows you to pay more upfront, reducing the loan amount and overall interest costs.
• You Need Consistent Cash Flow to Cover Loan Payments: Factoring ensures that slow-paying customers don’t disrupt your ability to make timely loan payments.

By leveraging factoring and equipment loans strategically, your business can secure essential machinery, vehicles, and tools without jeopardizing day-to-day cash flow. Factoring keeps working capital available, while financing spreads out the cost of big-ticket purchases, giving you the financial flexibility to grow sustainably.

Factoring + Bridge Financing 

Bridge financing is designed to provide short-term capital while a business secures a longer-term funding solution. However, bridge loans often come with high interest rates and strict repayment terms, making cash flow management critical. Combining bridge financing with factoring can help your business maintain financial stability while covering short-term obligations.

How Factoring Supports Bridge Financing

When used alongside bridge financing, factoring can help your business meet short-term funding needs without accumulating excessive debt.

• Reduces Reliance on High-Interest Bridge Loans: Factoring injects working capital into your business, potentially lowering the amount you need to borrow through bridge financing.
• Accelerates Loan Repayment: Bridge loans are meant to be short-term solutions, but high interest rates can become costly. Factoring ensures you have consistent cash flow to help you repay bridge loans faster and reduce interest expenses.
• Covers Operational Costs While Awaiting Long-Term Financing: Businesses often use bridge loans while waiting for larger funding, such as SBA loans or private equity investments. Factoring provides an additional funding stream to support daily operations without depleting the bridge loan.
• Minimizes Financial Risk: Short-term debt can be risky if cash flow becomes unstable. Factoring can ensure your business meets financial commitments, even if customer payments are delayed.

When to Use Factoring and Bridge Financing Together

• You Need Capital Immediately While Securing Long-Term Funding: Factoring provides an ongoing cash flow source, which reduces dependence on short-term loans.
• You Want to Pay Off a Bridge Loan Quickly: Factoring can help your business generate cash faster, allowing you to pay down bridge loans before interest costs add up.
• You Need to Cover Payroll, Rent, or Other Immediate Expenses: Instead of using all bridge loan funds for daily expenses, factoring provides an alternative cash source while awaiting a permanent financing solution.

By combining bridge financing with factoring, your business can gain financial flexibility, ensuring it can meet short-term funding needs without creating long-term financial strain. Factoring provides stability, while bridge loans serve as a temporary solution that gives your business the breathing room it needs to transition to sustainable financing.

Explore How Factoring Can Fit into Your Business Financing Plans

While the information contained in this guide is true for most situations, every business is unique. Your current business financing arrangements, goals, and other details shape which additional funding solutions are viable and ideal. The best way to learn what your options are and how they’ll fit into your strategy is to talk with a factoring specialist. To get started, request a complimentary rate quote.

FAQs on Combining Factoring with Other Financing