Maybe more so than at any point in the last few decades, small and upstart businesses have fixed their focus on being quick, nimble and flexible while locking themselves into as few firm commitments as possible. This style of business growth allows for quick pivots, low risk, and most importantly, a work/life balance.
Uber, for example, has built a thriving business without owning any vehicles. Airbnb found a way to disrupt the hotel industry without ever having to plunk down a dime on any costly buildings. Similarly, young entrepreneurs have become quite adept at running promising businesses with fluid office solutions, outsourcing employee functions and obtaining short-term influxes of cash only when needed. With similar “Uberization” ideals in mind — albeit in a completely different business realm — the concept of purchase-ordering financing has proven to be highly beneficial to hundreds of small-to-medium companies because the world of distribution and manufacturing, cash is and always will be king. Without cash on hand to fund purchase orders and fulfill contracts, growth will be most likely stifled and customer relationships can sour.
Purchase-order financing provides access to funding for undercapitalized smaller businesses that are expecting high growth opportunities. This type of financing allows companies to fill orders that they otherwise wouldn’t be able to handle.
The major kicker, of course, is that the companies that utilize purchase-order financing are able to do so without being forced for fork over equity in their company. In the day and age of nonstop fundraising for some busineses, access to capital without giving up equity is a major win for young entrepreneurs.
“The big trend now is always, ‘How do people manage their business or operate their business without big commitments to anything?’” asked Avi Levine, Vice President of Star Funding, Inc., which specializes in purchase-funding for small-to-medium-sized companies. “The idea of offering flexible access to capital without taking equity is precisely what purchase-order financing has been doing for hundreds of years.
“A company like ours doesn’t want to own our clients’ businesses, we don’t take any equity, we don’t want a board seat or worry so much about what’s going on with your business beyond the specific transactions that we are funding,” Levine added. “We’re there more as a resource that you can dip into on a transactional basis. It’s the perfect fit today for businesses that aren’t looking for the long-term commitments with banks and other financial institutions.”
Giving companies a chance to dramatically scale their businesses without having to surrender any of their stake in it appeals greatly to young entrepreneurs, Levin said. In the case of upstart companies loaded with promising potential, purchase-order financing offers a pathway to both growth and continued ownership strength.
Levine said purchase-order financing has proven to be a boon to hundreds of upstart businesses looking to maximize their potential while also remaining nimble and flexible in these ever-changing times. He said the concept of purchase-order financing has helped younger companies better compete with more established ones, and it has often allowed them to achieve their financial goals in shorter periods of time.
“We’re seeing younger companies winning larger purchase orders from major retailers because the retailers are in a race to get the new best items and smaller companies can stick out quicker now because of that,” Levine said. “We’ve seen companies grow from $10 or $12 million to more than $100 million in sales in a 12-to-16-month period. If a brand is in high demand a retailer such as Target or Walmart can order millions of dollars in product. As long as they have the confidence that the vendors can ship on time, with the right quantity and quality, they have no problem issuing a purchase order to a newer company. Then, purchase-order financing helps the brand deliver as promised.”