Landing a large order from a reputable client is a small company’s dream – but that dream can turn into a nightmare if your business is without the working capital to fulfill and deliver such an order. If you can’t fulfill the order, you risk losing that order – and future ones – to a competing company. If you can’t accept larger orders, your company’s potential for growth is limited. The way forward is to break the cycle of small orders and get financing to help you handle large ones.
When You Can’t Use a Bank
In recent months, bank lending has slowed while purchase order financing and other alternative financing methods are on the rise.
Small or new companies can run into problems with traditional financing and may be rejected. Most banks won’t offer loans against purchase orders. Instead, the offer loans against your company’s existing collateral. Most small businesses are unable to provide the required sales records or assets to qualify for a bank loan.
Purchase Order Financing
Purchase order (PO) financing is an alternative form of financing that can help small companies with large orders that need working capital in order to fulfill them. A purchase order financing company will pay your supplier directly. The payment from the purchase order financing company lets your supplier manufacture and deliver the goods. Then, your company can complete the order and receive payment. Once your customer pays for their order, the transaction is considered complete. Turnaround time for payment to the manufacturer from the PO financing company is generally one to two weeks.
The financing rates for purchase orders vary based on transaction size, transaction completion time, and general risk.
Before you apply for purchase order financing, you’ll need to make sure the transactions you wish to finance meet certain criteria.
The transaction has to be for finished goods or products, and there must be a minimum 25% gross margin. The minimum transaction amount for a financeable order is $50,000 (there are some exceptions). In addition, the PO Financing cannot be cancelable and your buyer must be in good commercial credit standing – your purchase order financing company will check your buyer’s credit before the approve the deal.
PO Financing for Growth
Purchase order financing is often a way for smaller companies to finance growth so they can eventually secure traditional business financing. Growing a business using purchase order financing helps to strengthen it and put it on the path to conventional bank financing.
Bull Market Capital: Business Funding Solutions can help your small business achieve growth through financing. Our financial advisors are waiting to help you with any questions you may have about purchase order financing for your small business.