The Little-Known – but Very Costly – Risk of Getting a Purchase Order Loan

Business Funding - 3 Min Read

If you’re a regular visitor to our blog, you may recall we’ve highlighted that getting a purchase order loan may not be the right way to boost your working capital. To recap:

  • With a purchase order loan, you don’t get the full value of the purchase order when it’s paid. You typically receive around 80 percent. And if this isn’t enough to cover your operating costs or bridge you to your next purchase order payment, you may feel compelled to take out another purchase order loan. As you can see, this creates an ongoing spiral, and it’s one that has ensnared many businesses. It’s essentially the business financing equivalent of a payday loan.
  • With a purchase order loan, your customers pay the lender – not you. And while you may not care, your customers may feel differently. That is, they may not appreciate dealing with a 3rd party. They may even start to wonder if you’ve sold your business, or are heading out of business altogether because of cash flow problems. Frankly speaking, most businesses that take out any kind of business loan wisely prefer to keep that information behind closed doors. A purchase order loan can be like taking an out an ad in the newspaper.
  • Unlike other business financing options such as a merchant cash advance, a purchase order loan doesn’t take into consideration your actual cash flow situation. This can be a problem if you’re having an unexpectedly slow month or quarter, and need additional capital to get revenues back on track.

However, despite these clear drawbacks, there is still one more risk of getting a purchase order loan – a risk that, surprisingly, is little-known and continues to sideswipe many business owners: they take WEEKS to process.

As such, business owners have to anxiously wait for their application to (hopefully) be approved, so they can get the cash they need to fill a purchase order. Yet if/when that happens, instead of breathing a sigh of relief, they’re forced to scramble to meet a looming deadline to fill their purchase order. This can lead to major problems, including missing the deadline altogether – and losing the customer and revenue.

Lenders who offer purchase order loans advise business owners to start their application before they actually have a purchase order. This is ridiculous and unrealistic. Nobody has a crystal ball, and business owners don’t have time to pre-apply and go through a tedious, time consuming underwriting process in the event that a purchase order materializes.

The Mulligan Funding Alternative

At Mulligan Funding, we have a much simpler, streamlined and in our opinion, safer and strategic alternative: apply for a working capital loan or a merchant cash advance.

With either option, you – and only you – deal with your customers, and we don’t intervene or interfere. What’s more, you’ll pay your loan back in small daily increments, which allows you to keep 100% of the payment associated with your purchase order. And while this is beneficial in any event, it’s especially important if you’re going through a bit of a dry spell revenue-wise. Instead of searching for more business financing, you’ll have the capital you need to get things back on track.

Furthermore, you don’t have to apply weeks or months in advance and wait until a purchase order materializes. We assess all applications within 48 hours, and upon approval, we transfer the loan to your account within days. So even if you happen to sell novelty crystal balls (hey, they’re fun at parties!), you don’t have to gaze in one to find out when you should apply.

Learn More

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.