When brothers Adam and Alex Stiles started staffing firm Recana Solutions LLC in August 2001, they could not find a traditional bank loan.

They turned to factoring—selling their future invoices to a third party at a discount for immediate cash.

Factoring is an ideal method for temporary staffing firms such as Recana, which must make weekly payroll, tax, and insurance payments, but gets paid 30 or 60 days after providing a service.

Now, the $18 million business could get a bank loan or self-fund its payroll demands, but continues to prefer factoring because of flexibility, company vice president Alex Stiles said.

A wider range of industries has been turning to alternative credit sources because of tight credit and tougher scrutiny, said Bert Goldberg, executive director of the International Factoring Association. He said it is difficult to gauge the amount of cash flowing through the factoring industry because it is fragmented and unregulated. He added that while more businesses are turning to factoring, many have lower accounts receivable, so overall business might be up, but lending could be flat.

Debra Wilson, a partner and senior vice president at Vertex Financial, a Dallas-based factoring company, said new lines of business have come from commercial construction and oil and gas service businesses. She and others in the industry said health care businesses and companies with government contracts are also increasingly turning to factoring.

Vertex funds clients in the $50,000 to $250,000 monthly range, but it is seeing more opportunities to fund companies at $1 million to $2 million a month, Wilson said.

“Now we’re seeing companies at that level not being able to get bank credit,” she said.

Based on its July survey of senior loan officers, the Fed reported this week that “on net, banks had eased standards and terms over the previous three months on loans in some categories, particularly those categories affected by competitive pressures from other banks or from nonbank lenders.”

The Fed added that the improvement in lending was coming mostly from large domestic banks.

Wilson said the only limit for factoring and asset-based lenders has been their capacity to underwrite deals. Vertex has added employees to its staff of 10 this year to check credit and collect on the accounts receivable it buys, Wilson said.

Similarly, Melinda Fricke, Dallas-based vice president for business development with Crestmark Bank, said her institution has increased its employee count by 20 percent to add capacity to underwrite new factoring and asset-based lending deals. Those hires have been at centers in Michigan, Florida, Louisiana, and Tennessee.

Asset-based lending has seen commitments climb 49 percent in the second quarter, according to data from the industry’s Commercial Finance Association. Asset-based lenders provide a line of credit based on the value of a company’s hard assets, such as commercial equipment.

“In the last two years, CFOs who may not have been as familiar with the product have had advisers suggest an ABL product. It has gained more traction from there,” said Bob Arth, president of Bank of America Business Capital.

Michael Haddad, president and CEO of Core Business Credit, said while the industry has always kept close tabs on the companies it works with and the value of their secured assets, the relationships have grown closer in the past few years.

“We’re calling the client every day, it’s a much more intimate, personal relationship,” Haddad said.

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Chad Eric Watt writes for the Dallas Business Journal.