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Purchase Order Financing - An Alternative Source of Business Financing

A Non-Traditional Form of Commercial Financing for Small Business

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Purchase order financing, a non-traditional form of business financing, is a means for small businesses to get business loans and business credit in our slowly recovering economy. It is similar to the practice of factoring, where a business sells an invoice to a financing company at a discount in order to get its money faster. Purchase order financing takes this practice one step further.

Purchase order financing companies help businesses with their commercial financing by offering to guarantee their purchase orders from a buyer that is committed to purchasing a product that the company is trying to sell. The purchase order financing company is helpful to the manufacturing company because they pay for the manufacturing process and to have the finished goods shipped from the factory. Once the financing company is paid, they take their cut and give the rest of the money to their customer.

One key that sometimes gives the economy at large pause about purchase order financing is that often the manufacturing facilities are overseas, largely in China.

The process is expensive to the customer that hires the factoring company. The interest rate, or price of hiring the factoring company, is usually much higher than the cost of a bank loan. The cost of the loan is usually about 1% - 5% of the amount advanced per month.

However, the problem is that banks aren't loaning the amounts of money that small businesses need to stay in business. If small businesses are to stay in business during the recession, they have to get financing somewhere. Purchase order factoring companies are an option for them for business loans and business credit.

Purchase order financing companies don't screen companies based on their credit report or credit score. They look more at the deal they are anticipating financing and whether or not it is profitable and solid.

There are only a few purchase order financing companies in the U.S. at this time. One is Purchaseorderfinancing.com, out of Chicago who has been in business since 2002. Another is Hartsko Financial Services

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