A small business that uses factoring:
A)pledges its accounts receivable as collateral to obtain a loan from a financial institution.
B)relies on a third-party consultant to apply for SBA-guaranteed loans.
C)sells its accounts receivable to a third party to get the capital it needs.
D)borrows money from lenders by offering them the option to convert the loan into stock in the company.

Question

Quizplus · Accepted Answer

Factoring involves selling accounts receivable to a third party at a discount in exchange for immediate cash, which is commonly used by small businesses as a means of obtaining working capital without taking on additional debt. Option A describes a traditional loan secured by accounts receivable as collateral, while option B refers to the assistance of a consultant in obtaining Small Business Administration (SBA) loans, and option D describes convertible debt.

A Small Business That Uses Factoring