4 Common Myths about Purchase Order Loans

Posted by Factor Funding Co. on November 13, 2014

Purchase order loans are essential to many businesses' finances. Despite many businesses utilizing this financing, others are wary because of the myths that surround purchase order loans. When they learn the facts and understand why many myths are false, business leaders who have no other way to obtaining financing may consider these loans' purpose and advantages. They can be confident about this financial business option by understanding why these myths about purchase loans are not true. 

1) Purchase Order Loans Are Distasteful

Many businessmen and women believe that purchase order loans are distasteful and only utilized by less than reputable clients. They believe that people who operate fly-by-night companies or engage in shady dealings use these loans to help them pay off their debts.

However, people of all reputations and expertise utilize purchase order loans to keep their companies financially afloat and to grow their operations. Even big name and highly respected companies use this type of financing when they lack cash flow or need to pay for large orders without dipping into their profits. These people have good reputations in the business world and are respected by their peers, employees and the public.

2) Purchase Order Loans Are Risky

People who unfamiliar with these loans often believe that they must put their assets at risk before they can secure the money they need. They believe that a purchase order lender will require collateral like:

  • Payroll
  • Operating expenses
  • Real estate
  • Bank accounts

However, this transaction does not require that people put up such assets. In fact, the loan is extended for one purchase order transaction only and after that order is filled and the loan terms are satisfied. The lender does not put a business' assets at risk of being seized or sold. It does not require the extended commitment and payment terms that come with a bank loan.

3) Purchase Order Loans Have High Interest

It is true that purchase order loans have a slightly higher interest rate than traditional bank loans. However, these rates are still affordable for most businesses and in fact still let companies take in enough money to make a profit on the order.

Some CPAs and accountants who are unfamiliar with these loans miscalculate the interest, however, and falsely tell their clients that they will pay close to 50 percent interest. In fact, the interest rarely is that high and quite lower in most cases. Most interest rates are comparable to those offered by banks to high-risk clients who have poor credit.

4) Purchase Order Loans Are Lengthy and Difficult to Obtain

Some businessmen and women falsely believe as well that it will take a long time to get a purchase order loan. They understand that their clients' credit ratings and payment histories must be considered and that research must be done before the loan can be extended.

However, in many cases it only takes a few days, if not sooner, to finish the research for the transaction. Business people can have the money they need to fulfill their purchase orders without frustrating their clients or delaying the order's production, shipment and delivery.

In contrast, a bank may take several months to extend a loan. During this time, business owners must figure out other ways to pay for their orders, whether it is by not paying certain bills or using their personal lines of credit to pay for it. Purchase order loans take a relatively short amount of time to process and pay out the money businesses need to stay productive.

Many businesses rely on purchase order loans for their daily operations. People can realize the advantages of these loans by knowing why many myths about them are false.

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