Have You Considered Using Purchase Order Loans to Spur Business Growth?Posted by Factor Funding Co. on August 27, 2014
Starting a successful business requires that entrepreneurs possess both great ideas and ample financial resources to utilize when necessary. Because fledgling businesses in their earliest days have yet to turn a profit, people who own these upstarts may need to find a way to get cash quickly in order to fulfill their client orders. When they want the option of a short term loan without having the worry and commitment to a bank, business owners may wonder if purchase order loans would suit their operational needs. They can grow their companies and begin to enjoy making a profit when they harness these benefits that purchase order loans can offer.
1) Cash for Order Fulfillment
Perhaps the most attractive advantage that comes with a purchase order loan would be the immediate access to cash to fulfill customer orders. When a new business receives more orders than it has the cash to fulfill, it risks ruin if the owner cannot get the money that manufacturers need to make the product. Manufacturers often will not and sometimes cannot make the product without the appropriate financial backing. With that, a purchase order loan can provide the manufacturer with the needed money quick so that the product can be made and the orders can be filled.
2) No Credit Risk
Unlike traditional bank loans that require entrepreneurs to go through extensive credit checks, purchase order loans do not hold the business owner to unrealistic credit terms. In fact, the purchase order lender will check the credit of the client placing the order rather than that of the entrepreneur. This advantage spurs growth because it frees the business owner from the worries that come with having new or subpar credit ratings. This individual can avoid the worry of being turned down or charged high interest rates that may compromise the business's profitability.
3) Short Term Resolution
Bank loans often require that people make months and months' worth of payments before they can satisfy their debt. A purchase order loan, however, is a short term financial solution that is fulfilled once the orders have been completed and the product has been delivered to the customers. Once the PO lender takes its cut of the payment, the rest of the cash is turned over to the entrepreneur. This individual typically enjoys a nice profit, even after the PO lender has deducted its fees, rather than breaking even or owing more money to the manufacturer or lender. In turn, the profits can be used to grow the company.
4) Third Party Verification
People who enter loan contracts with banks sometimes think that the lender has the upper hand. The person borrowing the money may feel like the terms of the contract work in the lender's favor and that the borrower has little way to protect himself or herself against fraud or being taken advantage of until the debt is repaid.
However, with a purchase order loan, the lender typically utilizes a third party system to verify that the manufacturer made the order correctly and that the products have been shipped either to the third party warehouse or to the customers directly. Both the borrower and the lender are protected against fraud and the loss of profits. Both can receive their fair share of the money after the transaction has been completed.
Without this verification system in place, it would be easy for either to claim that money has been lost or that the product was not made or delivered correctly. However, with this protective precaution in place, the entrepreneur can continue to grow his or her without worrying about being shorted profits.
These four advantages go hand-in-hand with purchase order loans. Entrepreneurs can grow their businesses by using this lending option to their benefit.