Patricia Burns, president of Primary Funding, is a big factor in the support of small businesses in need of operating capital.

Ernie Tarut, owner of Old Gringo Boots, a Chula Vista maker of handmade boots, can easily qualify for a bank loan, but prefers using a factor to finance his 18-year-old business.

Factors advance funds to borrowers by purchasing their accounts receivable or invoices to customers. The client gets close to 90 percent of the money within a few days, while the factor keeps all money collected, less reserves and administrative fees.

For Tarut, borrowing with this system as opposed to obtaining traditional bank loans is a no-brainer.

“The service level I get from Pat (Patricia Burns, the president of Primary Funding, his factor) is vital for me,” Tarut said. “For what I pay her, it’s worth it.”

Because they are short-term lenders, usually dealing with smaller businesses that cannot obtain bank loans, factors have to be careful.

Yet, unlike banks that scrutinize a borrower’s credit history and ability to repay, factors focus strictly on the customers who pay the invoices.

“We shift the due diligence to the customers because they’re the ultimate source of the repayment,” said Burns, a veteran financier who’s been in the factoring industry since 1974, and the owner of Primary Funding since 1994.

The cost is higher than a bank loan and varies depending on the industry, length of contract, and volume of business or invoices purchased. If you’re looking for a one-time or “spot” advance on receivables, it’ll cost you even more.

Burns said she’s seeing a lot more business this year after banks tightened their lending standards due to a rising number of problem loans.

“Banks aren’t lending and the value of collateral has diminished so more small businesses that used home equity lines to finance are seeing those equity lines frozen,” Burns said.

Primary Funding gets most of its clients through bank referrals from institutions eager to avoid taking on new problem loans.

A common triggering point that causes a bank to spurn customers comes when a business fails to make a quarterly profit or violates some other aspect of the loan agreement, Burns said.

In the past, banks would often work with borrowers and give them another quarter or two to see if things turn around.