The Critical Differences Between a Purchase Order Loan and Purchase Order Financing

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When it comes to managing and maximizing cash flow, many businesses – especially small and mid-sized businesses – find themselves stuck between a proverbial rock and a hard place.

That’s because on the one hand, they enjoy growing demand for their products and/or services, and could easily generate more revenues and profits. As they say, it’s wise to “make hay while the sun shines”, and such businesses find themselves in the enviable position of basking in the noon sun without a cloud in the sky.

Yet on the other hand, they need to free up more capital to purchase new equipment or raw materials, hire new employees, cover advertising and marketing costs, and so on.

To exit this dilemma, many businesses – and yours may be among them – wisely explore various business loan possibilities, and come across an option that at first glance may seem to be the same thing, but referred to in two different ways: a “purchase order loan” and “purchase order financing”.

However, despite the similar wording, it’s extremely important for you to know BEFORE you sign any documents or agree to any terms, that a purchase order loan and purchase order financing are NOT the same thing. In fact, they aren’t even close!

Purchase Order Financing

Purchase order financing is when your business legally sells a purchase order to a lender in exchange for cash. Once the order is fulfilled (i.e. once you deliver the goods to your customer) you send an invoice as per normal. However, instead of paying you, your customer pays the lender, who keeps a large portion of the amount to cover the loan principal plus interest. Any residual funds are sent to you.

And in cases where your customer pays on terms, the lender may buy the debt outright from you at a discount, and then keep the full amount received (the difference between the discounted they paid vs. the amount they received from your customer is their profit).

As you can see, the drawbacks of purchase order financing are significant:

  • Your customers deal directly with the lender – which may not be something you or your customers are happy about. After all, they’re doing business with YOU, not some third party lender.
  • The “optics” can be disconcerting, and lead your customers to think that you’re having cash flow troubles – or maybe on the verge of insolvency.
  • The amount you owe is taken up front when the invoice is paid – and it’s usually very large. For this reason, some businesses find themselves in a “purchase order financing cycle” that is hard to escape, and they must take out loan after loan.

Purchase Order Loans

Alternatively, a purchase order loan from Mulligan Funding — a.k.a. a working capital loan – is a categorically different business funding option. Here are the reasons why:

  • You do NOT sell your purchase order(s) to any third party, and your customers never deal with anyone else but you.
  • As a result of the above, you KEEP 100% of the purchase order amount when it is paid, as there is no middleman to “take their cut”.
  • Instead of having to pay your loan back in full when the invoice is paid, you pay back a small fixed amount each day. As such, you are not forced to take out loan after loan just to have access to the cash you need.
  • If you wish, you can pay your loan back early to reduce your interest. There is no pre-payment penalty.

Learn More

If your business is stuck between a rock and a hard place – because you have eager customers who want to buy from you, yet you need capital to make key investments and cover critical expenses – then call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.