How to Finance Your First Large Order

As a product wholesaler, receiving a large order can be exciting. Purchase order financing is a way to have the financial resources necessary to fill large orders, allowing you to accept customers and orders that have the potential to help you grow your business.

The Failures of Traditional Financing

Most traditional banks will only provide loans against existing collateral, and the process for obtaining the loan can be difficult and lengthy. Many small businesses do not have the assets, credit score or social collateral and reputation necessary for obtaining these traditional loans. Obtaining a loan against a purchase order is an option for these small businesses, but they will often have to look to a purchase order financing company or other venture capitalist organizations for financing options.

The Benefits of Purchase Order Financing

Receiving a large order could mean that your business doesn’t have the time to wait for a traditional loan. This kind of financing allows your business to pay suppliers directly, giving you the materials you need to complete large orders quickly. This simple solution can be used anytime your business has an order that exceeds the materials you have on hand and your financial capability to purchase new supplies.

Qualifying for Financing

Only certain transactions meet the requirements for purchase order financing. Because this type of financing relies on ability of the buyer to have good commercial credit, and orders must be of a certain size, this kind of financing does not work for all businesses. It is also necessary that the transaction involves finished goods and that the purchase order is not cancellable, so businesses must be committed to completing the project before obtaining this financing.

Financing as a Tool for Growth

Financing purchase orders is used by many small businesses as a stepping stone to obtaining traditional financing. Growing your business and strengthening your balance sheet are necessary parts of obtaining traditional financing. Once these goals have been achieved, a business could be in a better position to obtain a traditional line of credit or other kinds of business financing.

As with other kinds of business transactions, the cost of purchase order financing will caty depending on a variety of factors. Some of these include the size of the transaction, the risk involved with financing the business and how long settlingå the transaction takes. Contacting a finance manager or order financing company is the best way to determine if this financial tool is right for helping you grow your business.