As we look back on the gradual and uncertain economic recovery of 2010 and the beginning of 2011, we see some businesses that were able not only to survive but thrive during the recessive environment thanks to the purchase order financing. In simple terms, purchase order financing can provide up to 100% of the capital needed to manufacture or acquire inventory in order to fulfill purchase orders This allow businesses to grow when they have profitable sales opportunities but do not have the balance sheets to support traditional financing.
Generally, a company simply needs solid purchase orders from creditworthy buyers, and it must have the ability to perform and deliver the inventory if provided the proper capital. The borrower's balance sheet is not necessarily a determining factor. Purchase order finance focuses on the end buyer's credit as the ultimate support for a transaction.
After the "perfect storm" of uninterrupted growth fueled by a decade of excess liquidity came to a rapid end, credit contracted in a manner not seen since the great depression. The last several years have brought undeniably difficult economic circumstances to many American companies and their employees, but some have managed to navigate their way through it and come out on top because they financed their businesses and sales with purchase order financing.
The economic recovery is a slow, jobless one and is coupled with a constrained credit environment, which continues to make it difficult for companies to prosper. The businesses that become undercapitalized or underfinanced often find it challenging to obtain conventional financing to fulfill their backlog of orders. Even if they see an improved outlook in their sales opportunities, such companies run headlong in a constrained lending environment. That, coupled with the fact that their balance sheets have become smaller, make them ineligible for conventional loans. For such companies, purchase order finance could be a viable way out of the financial deadlock.
Purchase order financing is a great option for growing companies as well. For such firms, their future sales tend to be much more substantial than their past sales. Banks, however, rely on the current balance sheet and historical performance in making their credit decisions. A financially sound purchase order finance company, on the other hand, will look at the sales opportunities and can structure a finance solution that could provide a win-win situation for both parties.
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