Factoring is not a loan.
“Factoring” is the buying of accounts receivable at a discount. The price is discounted because the factor (who buys them) assumes the risk of collection on the accounts receivable. Black’s Law Dictionary, Eighth Edition, 2004.
The three parties directly involved in a typical factoring arrangement are: the owner of the account receivable, the debtor on the account receivable (usually the customer of the owner), and the buyer of the account receivable (also known as “the factor”). The receivable is associated with the debtor’s liability to pay money owed to the owner of the account receivable (usually for work performed or goods sold). The owner sells one or more of its invoices (the receivables) at a discount to the factor in order to obtain cash. The sale of the receivable transfers ownership of the receivable to the factor, and the factor obtains all of the rights associated with the receivable, including the right to receive the payments owed by the debtor for the invoice amount.