As a small business, you will have to use all sorts of funding deals to access the capital you need. In your search for funds, you will be hindered by many factors -your credit score, high repayment costs, or time. Different lenders and different financing services will have their unique set of pros and cons – you must consider these carefully and choose the deal that suits your business needs best.
In this article, we explore the details of a popular service offered by alt-fin lenders – Purchase order financing.
What is Purchase order Financing?
It is a financing service that allows you to access credit on the strength of a purchase order from a customer. If you are suffering from a cash flow problem, and are finding it hard to buy raw material or pay manufacturing costs to fulfill new orders, then you can take out an advance against the money you expect to be paid on delivery of the finished order.
Basically, you (or your suppliers) get cash from an alt-lender to complete an order and then pay it back once you are paid by the customer.
Some lenders, such as Mantis Funding from New York, pay up to 100% of the manufacturing costs.
Benefits of Purchase Order Financing
Easy approvals and hassle-free process: You don’t need perfect credit scores or high revenues to qualify for PO financing. As the funding is based entirely on the order you have already received, you just have to show your ability to manufacture and deliver on time.
Lenders like Mantis Funding review PO financing applications based on the original Purchase order and the estimates from your suppliers. With this information, they pay your suppliers directly. Once the order is fulfilled, your customer pays the Mantis Funding team directly, and you will get the amount reimbursed after fee deduction.
Unsecured funding: This type of financing does not require any collateral. As the lender deals directly with your supplier and gets the final payment from the customer, the need for collateral doesn’t arise.
Short-term, controlled lending offers: Most purchase order financing offers are for the short-term. The delivery and payment dates are clearly laid out and allow you to know what type of debt you are signing up for. In general, PO financing is for 60 days, and this gives you precise control over repayment costs and fees.
Fast processing speed: While a PO funding deal isn’t as fast as a Merchant Cash Advance (which lenders like Mantis Funding review and process in just a day or two), it is still a quick way to get the money you need safely – especially as compared to banks and credit unions. Most lenders take around a week to process PO financing, and this process can be sped up if your suppliers give their estimates quickly and assist the process.
When is a PO financing the best option for your business?
Purchase financing is a great option for –
1 – Wholesalers, manufacturers, and similar businesses.
2 – Companies with a weak or unestablished credit history
3 – Dealing with seasonal spikes in demand
4 – Companies on an expansion drive looking to add on new customers without tying up large investments.
5 – Businesses with tight cash flow situations due to low off-season revenues
If you find yourself in a situation that mirrors some of the details mentioned above, then do explore purchase order financing with a reputable alternative online lender. It could turn out to be just the boost you need to take your company to the next level.
Drop us a line below if you want to know more about purchase order financing or similar funding options.