Comparing Medical Transcription Factoring to Bank Loans


Many medical transcription service owners (MTSOs) tend to shy away from factoring because of the notion that it is more expensive than a bank loan. To be perfectly honest, factoring is more expensive than a traditional line of credit; however, the age old saying: “You get what you pay for” comes into play when comparing and contrasting a bank loan to accounts receivable funding.

Medical Transcription Factoring Has a Quick Approval Process

When it comes to lending money, banks move slowly. Even in the best of times, borrowers are required to sign mounds of paperwork, provide extensive historical personal and business information, and then wait to be approved by a loan committee. With the current credit crisis, the requirements are stricter and waiting times have increased dramatically.

On the other hand, the approval process for medical transcription invoice funding takes a mere 1-3 days upon receipt of the fully completed documents. Once approved, the initial cash advance can happen within 24 hours.

Medical Transcription Factors Keep Personal and Business Obligations Separate

In order to be approved for a bank line of credit, most business owners would be required to sign a personal guarantee, whereby an MTSO is required to assume personal responsibility for repayment of the loan, should the business not be able to repay the obligation. Moreover, most banks require an MTSO to pledge additional collateral (i.e. house or marketable securities). These can be daunting responsibilities for business owners who strive to keep their personal credit/collateral separate from the company’s.

Many medical transcription funding firms do not ask for a personal guarantee. Some factoring firms will only ask a business owner to sign a validity guarantee, attesting that any invoices he/she sells to the factor are valid. In addition, the only collateral a factoring firm requires is a first security position on the transcription service’s accounts receivables.

Factoring Firms Work with Startup Medical Transcription Companies

Traditional lenders require their borrowers to show at least two years of profitable operations before extending credit. In addition, banks require a clean and strong credit history for both the MTSO and the transcription service.

On the other hand, medical transcription factors extend credit based on the credit worthiness of an MTSO’s customers (i.e. medical clinics, doctors’ offices, and hospitals), rather than the credit history of the business or its owner. Because of this, many factoring firms have no qualms about extending credit to brand new transcription services.

Credit Limits Grow as the Transcription Business Grows

Once approved for a small business loan, most MTSOs have enough to jumpstart their business – buy computers and other equipment, hire transcriptionists, and market their services to medical facilities. However, business owners tend to run into problems as soon as the cash runs out, which is usually right around the time that the business is ready to literally open its doors. Hence, one big problem with bank financing is outgrowing the maximum credit line.

With medical transcription factoring, the sky is the (credit) limit. Medical transcription factors provide cash based on the quality and liquidity of the company’s receivables. Moreover, each account is evaluated individually, allowing for the ultimate in credit-lending flexibility. In essence, each time an MTSO starts transcribing for a new credit-worthy customer, he/she gains immediate access to additional capital.

Transcription Factoring Provides More than Cash

Unlike a bank relationship with limited communication, accounts receivable factoring firms maintain a day-to-day connection with their clients. Medical transcription factors monitor invoices, check credit on potential new customers, and provide detailed reports on an ongoing basis for MTSOs. Business owners will be paired with one specific person or department who handles the day-to-day obligations of the transcription owner’s accounts.

In addition, there are factoring firms that specialize in funding medical transcription invoices exclusively. These specialty factors are uniquely familiar with the intricacies of the transcription industry – jargon, payment terms, line counts, etc. Whereas, banks work with all kinds of companies, and often times, there’s a learning curve that has to happen before funding approval.

As stated earlier in the article, factoring firms cannot compete with banks on price alone. However, when researching the pros and cons of invoice factoring and bank loans, MTSOs should take the time to look at more than just pricing, as factoring firms offer so much more than money.