Are you aware of purchase financing for business? If not, it is an alternative way to access working capital finance. As a small business owner, you may be facing difficulties in maintaining the cash flow and ensuring business continuity. At these times, purchase financing for business comes to help. This process allows you to borrow credits from financial service providers to meet the capital requirement for raw materials and buying equipment.
Why Purchase Financing for Business?
While it is very much like short-term loans, they are used to procure products to efficiently run the business operations. The borrower cannot use the amount to make any other payment as it is solely reserved for the purchase of equipment and other materials. By leveraging purchase orders, you can get purchase finance from NBFCs like OfBusiness. By reviewing your ability to repay the loan, the financial service provider approves the credit limit. The good news here is that you don’t have to submit any collateral for purchase financing for the business.
Once the business owner gets the fund in hand, they can settle the purchase Order Financing with the lending institution. The fees and costs are pre-agreed at the time of the lending agreement, so there should be no nasty surprises.
Who Uses Purchase Financing?
If you find that you need to buy items from suppliers before fulfilling a customer order, then purchase financing might be a good option. Typically, the types of businesses that might use purchase financing include:
- Companies with heavily seasonal sales patterns
- Companies with tight cash flow and a need to purchase materials before fulfilling orders.
Purchase order financing is majorly used for:
- Purchasing a new piece of equipment
- Purchase extra inventory.
- Stay competitive on terms to win new business.
- Avoid out of pocket expense on future purchase orders.
- Buy materials necessary to deliver a project.
Read more interesting articles:-
Working Capital Loan vs. Term loan: What You Need to Know
Purchase Financing for Business: Pros and Cons
Purchase order financing gives you the capital you need to fulfill an order you otherwise couldn’t. Since Purchase financing companies care more about the purchase orders than your particular financial situation, you may qualify for funding even if you have bad credit.
Purchase financing for business, however, is not without its downsides. For new business owners, the financial service providers will take a percentage of the entire purchase order. Depending on the lender, this charge can be quite significant. Finally, purchase order financing only covers the costs of orders. You can’t use the money to grow your business in any other way.
Pros of Using Purchase Order Financing
- Allows you to take on orders you otherwise wouldn’t be able to fulfill.
- Fast and easy financing
- You may qualify even with bad credit.
Cons of Using Purchase Financing for Business
- It can be quite expensive compared to other financing options.
- It only covers the costs associated with producing or purchasing physical products.
- It may not cover smaller orders.
- It is not very flexible, in that it only covers purchase orders; you can’t use the money for anything else, such as other business expenses.
Purchase financing provides funding for businesses with purchase orders to pay their suppliers and smooth out cash flow. It is an effective and popular option for those businesses which need a quick way to finance their purchase orders.
Are you looking for ways to get funding for your small business? Do you need to advance funds to help you manage cash flow gaps or take advantage of growth opportunities? We’re here to help. Get in touch with us.