Is a Purchase Order Loan Right for Your Small Business?

Is your small business experiencing too much success too quickly? Sometimes succeeding beyond your wildest dreams isn’t all it’s cracked up to be. While you’re waiting for payment on your initial orders, new orders are coming in that can’t be filled until you can buy more inventory or buy new equipment to meet demand more quickly. If you find yourself in this situation, you may want to consider a purchase order loan.

What Is a Purchase Order Loan?

Purchase order loans are loans issued by private lenders, not traditional banks. The lender offers you a loan against your verified purchase orders that have not yet been fulfilled. Unlike a traditional loan, there is nothing to repay. A lender buys the purchase order and receives the payment directly from your customer, sending on your portion of the proceeds minus their fee. 

Create Strong Cash Flow

Depending on the lender, the money you borrow may be paid directly to your supplier to fulfill open orders. All you have to do is sit back and wait for your money to come in. This frees up your existing cash to pay your employees and take care of business. Other lenders will pay you directly and you can use the funds however you see fit. Obviously, you want to be able to fund your production, but you can also invest in marketing or pay other bills.

A strong cash flow isn’t just peace of mind, it’s the key to building your small business credit. Every month you’re able to pay all your bills on time, the better your credit report will look.

Verify Your Orders

Another benefit of purchase order financing is verification that your orders have been filled correctly. The financing company hires a third party to verify that orders have been filled successfully because they don’t get paid unless your customers are happy with the product they receive. When you consider the cost of a PO loan, remember that you’re also saving money when you don’t have to pay someone out of your own pocket to perform this function.

Purchase order financing isn’t for every business or every situation, but if your success is actually hindering your future growth, it can be the key to meeting and exceeding customer expectations for product and delivery time. Find the right lender by doing your research. Costs can vary widely not only based on your industry but on the lender. A good lender can become a business partner for years to come.