Using Purchase Order Financing for Small Business Growth

Even if business is booming and your products are flying off the shelves, the growth of your company is not a foregone conclusion. Expansion requires a lot of fund reallocation and usually some form of financing beyond your standard revenue. So how do you go about growing your company without becoming overleveraged? One way, and perhaps one of the best ways, is through purchase order financing. By securing money with an existing order or contract, you can get cash quickly and conduct more business without spreading yourself too thin.

 

Expedite Your Growth

 

For most small businesses, growth takes many years and happens at a snail’s pace. This is because the revenue generated by regular business operations is usually immediately put back into the business. With all the costs you have to cover just to stay above water, it’s hard to set aside growth capital. However, by selling your purchase order to a factoring company, you can increase your gains over a short period and use those funds for expansion.

 

The simplicity of the system is part of the reason so many small businesses engage in this practice. The sale of the invoice is determined by the creditworthiness of your client and the order acts as your guarantee to the financing company. The goal is merely to speed up your returns so that you can do more business. If your customers are reliable and you’re consistently filling orders, this type of financing will help you get paid more consistently as well.

 

Avoid Typical Pitfalls

 

The standard lending practices that business owners use to get a boost in capital certainly can help with growth. The problem is those means aren’t available to everyone and can often be more trouble than they’re worth. For example, if your business has steady returns but is in the process of repaying a significant loan, most banks won’t approve a request to borrow more money. It’s also hard to get approved for a loan if your business is still in the early stages, as the majority of lenders like to see at least two or three years of business history. Selling purchase orders allows you to bypass those problems. As long as your customers are good for the money, there shouldn’t be an issue.

 

If you’re looking to grow your business, you need to plan ahead. Instead of hoping that the money will just show up, look into purchase order financing and be sure you have the growth capital you need.

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