Most business owners are familiar with the ins and outs of cash flow and the problems caused by a lack of funding at critical times. But, if you find yourself with a temporary lack of cash flow, what can you do? Maybe you will try applying for a business loan or get financial support from your dear and near ones. But is this the right way to deal with financial challenges for a business? Well, certainly not. There are multiple financing options, such as purchase financing.
It is a good solution under certain circumstances. For example, small businesses often struggle to find the funding to deliver their equipment and other materials. Purchase financing allows small businesses caught in a cash crunch to satisfy customers alleviating the cash flow issue.
Although it is a credit option, it is much different from business loans. Here, the lender provides credits based on the purchase made, including equipment, machines, or anything else. And, the lenders mainly consider your customers’ credit score and stability more than yours. Therefore, the process takes minimal time compared to business loans, and the entire process is faster and quicker.
It is not repaid on a fixed schedule, and fees are based on how quickly it is paid. Since interest accrues, the faster the customer pays, the more profit you realize. So, purchase financing is a more flexible option in comparison to business loans. It is technically not a loan, even though you are borrowing money. When your cash flow dips, you can trade in outstanding purchase orders for funding. Moreover, you can finance up to 100% of your costs in one lump sum without having to worry about paying back the money in installments.
It is a good choice for business owners who have a hard time being approved for a loan and within a reasonable time. It is usually easier to qualify for. The purchase order can function as collateral to back your loan.
When you take on a regular business loan, you usually need to sign a personal guarantee. This means that if the business cannot pay back the loan, the lender can seize your personal assets to get their money back. But, these are unsecured business loans where your equipment or other stuff itself remains as the collateral.
Startup owners often find themselves in a catch. They have a hard time getting funding because they do not have a record of accomplishment, but they are in rapid growth. If a startup turns down even one customer’s order, it can seriously hamper the NBFC’s growth prospects. It helps you keep all your customers satisfied while shoring up your cash flow.
It can help your business grow by allowing you to take on large customer orders and repeat business that would otherwise be beyond your financial reserves. In addition, having cash upfront allows you to negotiate better deals on supplies and bring in staff and machinery that would otherwise not be affordable. Finally, ensuring that you never have to turn down a profitable order because it is beyond your resources means your business can grow as fast as you can find customers for your finished goods.
If you’re in a cash crunch and orders are pouring in from reputable customers, it is a good way to fill orders without taking on a great deal of debt or risk. This financing option offers startups and small businesses a great way to meet unexpected demand without compromising their brand and reputation. In addition, it provides the perfect chance to scale your business to new heights.