The Benefits of Purchase Order Financing for Small Businesses
Cash flow problems can present big problems for small businesses. Not all small businesses can get a traditional loan, however. Fortunately, you have other options. One such option is known as purchase order financing. Here are a few benefits that this solution can provide for your business.
What Is PO Financing?
An alternative to traditional loans, purchase order (PO) financing is designed to assist small businesses stuck in a cash flow crunch. A purchase order company lends you money using your purchase orders as collateral. If you are unable to pay your supplier for everything that you need to meet an order from your customer, you apply for financing. The lender pays your supplier and you pay what’s not covered. After the order is fulfilled, your customer pays the purchase order company. You receive the remaining profits after the bill and all associated fees are paid.
Benefits of PO Financing
Financing is Easier to Secure than a Traditional Loan
PO financing is much easier to obtain than a traditional loan. The lender is more concerned about your customer’s credit history than yours. So long as your customers have good credit, you’re likely to be approved.
You Have More Flexibility
Financing isn’t paid on a fixed schedule like a loan is. The fees you pay are based on how fast your customer pays. The sooner they pay their invoice, the lower the fees you’re charged.
You Don’t Need to Provide a Guarantee
In most cases, you don’t have to provide a guarantee for the loan, nor are you responsible if the customer doesn’t pay it back. The risk you assume is the money you put into the sale.
Is PO Financing Right for Your Business?
Not having the money necessary to meet a customer’s order puts you in a difficult spot. You could refuse or push back the order, but doing so jeopardizes your relationship. You could apply for a loan, but if your credit isn’t that great, your chances of getting approved are much lower. It can also take a while to get funding, which could mean delaying the order and upsetting the customer. In such situations, PO financing can help you to more effectively meet the needs of your customers and keep them happy.
If you don’t qualify for a traditional loan or a loan just doesn’t make sense, purchase order financing may be just the solution you need to alleviate your cash flow problems and keep your business going strong.