If you’re a small businesses operator/owner, chances are you have or will encounter a somewhat happy problem. You need a small business loan for filling a purchase order because the response to your product has exceeded inventory supplies and you don’t have the needed capital on hand to restock. It is a fact that even very successful businesses often experience cash flow problems which can lead to your business losing momentum, market share or clients and customers.
A purchase order (P.O.) loan, also called production/pre-delivery or purchase order funding, is another financing option. It is typically a quicker and easier to attain. This type of financing doesn’t require you to go into additional debt or assume risk, but interest rates aren’t ideal.
Whichever direction you opt for to meet the demands of your small business, try to choose a lender who has a customer service and overall business reputation that is stellar.
A Traditional Commercial Loan
When preparing for the loan application, it is vital to have a thorough look at your personal and business credit history. Be prepared for your loan application and loan officer interview with a viable and professional looking business plan with spreadsheets, financial statements, graphs and charts if possible. Consider presenting samples of your products. “You can work with a loan servicing agent, such as Del Toro Loan Servicing, to administer the terms of your loan and work with your lender to ensure that things are running as smoothly as possible”
While qualifying for a loan from a traditional lender has been more difficult as of late, this is still a viable option for many small businesses. Before applying, you will need to think hard and put into words why you need the loan and how much capital you will need. This will be vital to developing a business plan to present to the lender you ultimately choose.
Even if you don’t have a local chapter of the Small Business Development Center (SBDC) or SCORE, these two services can provide you with online assistance in formulating a viable business plan. They work for small business owners free of charge.
When preparing for the loan application, it is vital to have a thorough look at your personal and business credit history. Be prepared for your loan application and loan officer interview with a viable and professional looking business plan with spreadsheets, financial statements, graphs and charts if possible. Consider presenting samples of your products.
A benefit of securing financing through a commercial loan is the generally lower interest rates –- although rates do vary between lenders. Another advantage is that sometimes the payments on the interest from your loan is tax deductible.
The downside to dealing with traditional lenders is that credit is currently a bit tight, and the whole process takes quite a bit of time, is effort-intensive and — worst of all — you take on substantial risk.
A P.O. loan works by allowing a lender to guarantee to your inventory supplier -– the manufacturer or wholesaler that you buy from to manufacture or resell your own products –- that you have the necessary funds to keep the inventory flowing as needed. It essentially closes the payment gap between the supplier and you.
With today’s tight credit situation and more exacting traditional loan requirements, a P.O. loan has the advantages of being easier to qualify for and faster to attain. Also, most P.O. loan issuers only take the credit rating of your clients or customers into account.
The downside to this type of loan is that the interest rates are not low. In fact, they are often comparable to those offered by banks to businesses who have a sub-par credit history. However, if your business is in a pinch and you are at risk of turning clients or customers down due to a lack of inventory, a fast and easily obtained P.O. loan could be crucial.