A community bank has three ways to offer factoring. Build a division. License software. Or participate alongside a factor that already operates one. They cost different amounts, take different amounts of time, and end with the asset in different hands.
Building it yourself is the most expensive path and the one most banks assume is the only one. You hire a division manager. A credit manager. A salesperson. You buy software, you build legal documentation, you write policies and procedures from nothing. Half a million dollars a year, easily, before your first dollar goes out the door.
Licensing software is faster and it is where a lot of community banks have landed over the years. The problem is what software does not do. It gives you a system to book deals on. It does not teach you factoring, it does not verify an invoice, and it does not tell you what a deteriorating collateral position looks like sixty days before the loss. Some of these programs also take a third of the revenue for the privilege.
The third option is participation, and it is the one almost nobody describes to bankers.
What a Factoring Participation Looks Like Inside a Bank
You originate. We underwrite, verify, document, service and monitor. The facility books in your bank’s name, on your balance sheet, and we participate at fifty percent on both the risk and the reward.
Your customer never leaves your relationship. They do not get handed to a third party who wants to take them from you. They sign with the bank they already trust, and the work behind that facility is done by people who have been running factoring operations for more than thirty years.
Setup runs about thirty days and a $25,000 fee. Compare that to the eighteen months and six figures a build takes.
There is also an exit, which is the part private label and white label programs do not offer. Once your portfolio grows large enough to support your own staff, you buy us out and the whole thing belongs to the bank. We say that out loud at the start, because the alternative is a vendor relationship you cannot leave.
That is the short version. The right structure depends on your credit box, your examiners, and the customers you are declining today, which is why the first step is a conversation and not a term sheet.
If you want to see what a factoring participation would look like inside your bank, schedule a call with our team.