With many small manufacturing firms still reeling from recent economic downturns and the ongoing small business credit crunch, finding the right funding solutions is a real necessity to remain viable. A recent article by Elaine Pofeldt and published in Forbes Magazine described some of the challenges facing the small business community. One major obstacle to growth is the lack of available credit from traditional sources; 69 percent of business owners pointed to the current tight credit conditions in the financial marketplace as a factor in slower growth and expansion. The July 2013 article also indicated that 35 percent of business owners reported an inability to obtain adequate funding from traditional sources to manage their immediate capital requirements.
The failure of the U.S. banking industry to provide adequate working capital loans for small businesses has created a market for alternative lending arrangements in the financial marketplace. Asset-based lenders have stepped up to fill this gap, providing a wide range of accounts receivable, purchase order and asset-secured loans and lines of credit that can provide the funds necessary to manage operational costs, finance expansions and deliver on contractual obligations. In the manufacturing industry, these loans can be of critical importance in meeting deadlines and delivering products to their clients. Purchase order financing arrangements are designed specifically to meet this ongoing need for funding.
Purchase orders constitute a legal agreement between the manufacturing company and its client. The client agrees to buy a specific amount of product for an agreed-upon price, and the manufacturing firm agrees to supply that product on a certain date. Failure to meet the terms of these binding contracts can lead to loss of the sale, legal repercussions and damage to the manufacturer’s reputation in the competitive marketplace. Monetizing purchase orders by using them as collateral for asset-based loans can provide needed funding to allow production of the goods needed to fulfill these contracts.
Manufacturers can present their outstanding purchase orders as potential collateral for asset-based lending arrangements. If approved, the manufacturing firm can then immediately obtain a large percentage of the amount that will be due on those purchase orders to manage the costs of operations, to acquire raw materials and to stay on track to deliver on their contracts. PO funding arrangements are approved based on the value of the purchase orders and the creditworthiness of manufacturing firm clients; as a result, even companies with less-than-perfect credit can qualify for these loans.
The asset-based lending marketplace offers a number of choices for borrowers. Established firms like Commerce Commercial Credit can offer PO funding solutions that provide rapid relief from the ongoing business credit crunch.