What is “Purchase Order Funding”?

Avi Levine from Star Funding provides purchase order funding and other creative working capital solutions to manufacturers and distributors to help them operate more efficiently and achieve their goals.

It happens… There comes a time when a small business may need a little extra financial support. There are dozens of ways to finance a manufacturing business including term loans, friends & family, and a few situation specific funding tools like Purchase Order Funding. Purchase order funding is a way to finance the acquisition or manufacturing of goods based on existing purchase orders and pre-sold inventory.

Here is how it works. After a business receives a purchase order, a lender or finance company covers the production or acquisition costs to procure goods for resale.  The finance company will look at the financial strength of the end customer and their ability to repay the loan in order to make the lending decision. Often times certain controls will be required for the lender to feel comfortable. If using a contract manufacturer the lender may request goods are inspected before shipping and drop shipped directly to the end customer.

There are two main types funding that can take place here. Finished Goods and Work In Process. Funding finished goods is typically much easier as the lender is financing the purchase or goods from a contract manufacturer or a 3rd party for resale to the end customer. A Work In Process requires a little more involvement from the lender. They will want to see that the manufacturer can demonstrate the ability to source the raw materials and produce the goods in house or through a 3rd party. The funding of Finished Goods is also typically less expensive than the funding of a Work In Process.

There are a few great resources for purchase order funding.  A manufacturer can go directly to a lender like Star Funding who specializes in purchase order funding or they can engage a broker/consultant like MRKT Capital that will determine the needs of a manufacturer and source the funding accordingly.

You may want to consider PO Funding if you receive purchase orders from customers and you need some capital to help fulfill those orders.

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