Pros and Cons of Purchase Order Financing
Like all financial products, PO Funding has its advantages and disadvantages. It depends on several factors, including where you are in business and the goal you have for funding.
–PO Funding is not a traditional loan
–Requirements are not as stringent as getting a business loan or credit card
–Works like a cash advance
–No upfront cash down or money out of pocket
–It helps you keep your current cash flow or reserve
–Helps solve the problem of no cash flow
–The lender handles transactions with the supplier and purchase order invoice collection
–Lender assumes most of the risk
–Gives your business scalability
–Solves supply shortage when taking on large orders
–Approval based on your client’s ability to pay
–Approval based on your ability to fulfill the order
–PO Funding is fee based with no recurring interest or long term payments
–Helps companies earn more profit from larger projects
–Companies can build a good reputation in their industry
–Not a good source of funding to build business credit
–Minimal profit margins if the lender’s fees are too high (Less than 20-25%)
How Do I Get Approved for PO Funding?
Once you’re certain you meet all the qualifications, you can apply to get approved. Use the steps above in “How does PO Funding Work?”. If you have a good relationship with your bank, ask about Purchase Order Financing. Not all banks offer this type of funding, so the next step would be other non-traditional lenders. It’s best to get help from an expert when looking for PO Funding approval. Also, make sure you have good payment history and no recent bankruptcies, liens, or other judgments.
What Type of Businesses Usually Need PO Funding?
PO Funding is not a good fit for everyone, but for the right business it can be your saving grace. Those who may need Purchase Order Financing are product based businesses. It doesn’t work for service businesses. Funding depends on a guaranteed (purchase order) payment for finished products. Service companies don’t have any tangible assets to add leverage to the deal.
Some specific product industries that use purchase order financing:
–Finished Goods Dealers
–Importers and Exporters
Your business should also already be somewhat established. It is okay for small business and fairy new companies to seek PO Funding. The important part is showing you’re capable of fulfilling the large purchase order you’ve taken on. That comes from a good track record of fulfilling orders correctly and on time. It also reflects through your equipment and business setup. Have you been reinvesting in the company to help it continue growing?
Businesses who have a good client relationships may also need Purchase Order Financing. Customers who you satisfied with your products in the past may decide to trust you with more orders. In that case, you need the cash flow to expand. You also have clients that you know are creditworthy. That means your chances are better for getting PO Funding.
Get Help With your PO Funding Today!
If you’ve caught your big break with your dream client, you may need a little help getting the job done. PO Funding is there to fill in the financial gap. Find the right Purchase Order Financing Lender with help from LenCred. We work with entrepreneurs and small businesses to get funding of all types. Contact us today for help getting capital for your business!