Purchase Order Financing

Since the 'Big Banks' have reduced lending to small businesses, they have turned to alternative means to raise funds. In addition to credit cards (credit lines reduced by the same Big Banks), pawnshops and 'payday' lenders, small business owners are discovering 'purchase order financing'. Similar to 'factoring' where a firm sells its invoice (at a discount) to raise quick cash, purchase order financing are guarantees, written by the buyer, that they are committed to purchase a product. Useful especially with off-shore manufacturing, the business owner would typically pay the factory to manufacture the goods, but in purchase order financing, the money firm instead pays to have the finished products shipped from the factory. Once the money firm is paid, they take their cut and gives the balance to the small business owner.

Why has this form of expensive financing gained popularity? The inability of small businesses to borrow from the lending institutions they use to reliably borrow from, prior to the current economic downturn.

Here's the latest report by the US Treasury that tracks this downturn in lending.

Here's a news story from the New York Times that lists this trend in more detail.

SBA, Dell Launch New Educational Video Series to Help Small Businesses Grow, Create Jobs

WASHINGTON – Highlighting the experiences of successful entrepreneurs, the U.S. Small Business Administration and Dell today launched an online video series offering tools and strategies to help small business owners rebound from the economic recession and put themselves in a position to expand and create jobs.

Strategies for Growth: Advice for Expanding Your Business includes real-world insight, solutions and advice from small business owners who’ve succeeded, in good and bad economic times. Additionally, the series draws on the expertise of counselors, policy makers and others for accessing resources and tools available to small business owners.

The Strategies for Growth video series highlights key topics that engage small business owners in issues critical to small business growth. These areas include Planning for Growth, Government Contracting, Team Building, Marketing, Technology, Exporting Opportunities, and Disaster Recovery. Also featured is a Profiles of Success segment that spotlights two successful entrepreneurs.

The Strategies for Growth video series features a range of growing small businesses from across the country, including a design firm, a vegetarian restaurant and bakery, and a green construction company. They are:

1. Grace Dittmar, Trusted Mission Solutions of McLean, Va.
2. Warren Brown, CakeLove of Washington, D.C.
3. Don Matzkin and Anthony Bracali, Friday Architects of Philadelphia, Pa.
4. Juan and Luis Yépez, Mainstream Global of Lawrence, Mass.
5. Ann-Marie Harrington, Embolden of Pawtucket, R.I.
6. Laurie Benson, Inacom of Madison, Wis.
7. Bryan Vulcan, FourFront Design of Rapid City, S.D.
8. Avinash Rachmale, Lakeshore Engineering of Detroit, Mich.
9. Jenna Sellmeyer and Jennifer Fogg, ASSET Group of Oklahoma City, Okla.
10. Jesus & Luisa Mendoza, Mr. Natural of Austin, Texas
11. Andrew Kruse, Southwest Windpower of Flagstaff, Ariz.
12. Mary Tappouni, Breaking Ground Construction of Jacksonville, Fla.

Strategies for Growth is available on the SBA’s Web site at www.sba.gov/StrategiesForSuccess and at the SBA’s YouTube channel at www.YouTube.com/sba. Each topic is indexed by subject and includes additional resources for entrepreneurs.

SBA Release Number: 09-82