When banks or institutions give you a business loan they also file a UCC lien securing their collateral. Usually, one of the items they ask for as collateral is Accounts Receivable. This is very common for most business financing transactions.
This usually kills your chances of getting purchase order financing. Purchase order finance companies will also need first position on your accounts receivable which the business loan is already claiming as collateral.
Why is this? If you think about it from a purchase order financing perspective, the actual "collateral" is the invoice that is generated by the order that they fund. Usually, the bank will not relinquish their position and the deal dies...... unless the stars align correctly.
One way to handle this situation is to see if the bank is willing to subordinate certain purchase orders, to be funded by the po financing company , who in turn is taken out by the bank when the order is delivered an invoice is generated. It's a bit tricky but it can be done in certain circumstances.
The net effect is that the purchase order financing company funds the inventory purchase and then the bank funds the A/R component. This can be important because many business loans have covenants covering inventory percentages. If structured correctly, this can work to the banks benefit.
Don't get me wrong - pulling this off is not easy. Your financial institution will probably have you jump through a couple hoops before approving this type of a transaction - but it's possible under certain scenarios (too complex to describe here).
Note: this article should not be construed as financial or legal advice.
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Looking for business financing in New Hampshire? Learn about factoring in New Hampshire and Invoice Factoring New Hampshire.
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