Every so often, we get a prospect who wants to use purchase order financing to finance a transaction to buy precious metals (gold bars, etc) or precious stones (diamonds, etc). The bad news - most finance companies (us included) will not finance those types of transactions. There are a couple reasons why we shy from offering purchase order financing for these transactions:1. There is high risk of fraud: These commodities are valuable and have a substantial risk for fraud or robbery. Losses can happen because the product is altered or stolen at any time of the transaction. Since these commodities are fungible the risk of this happening is high.
2. Most have complicated structures
3. Criminal activity risk: Lastly, precious metals and gems can be used to launder money, usually unbenownst to many of the transaction participants. A diligent finance company that is involved in this type of transaction would need to spend a considerable amount of time and money in due diligence to ensure it is not (accidently) involved in an illegal transaction. And even then - there is still the risk that the due diligence officer may miss any problems.
Because of these risks, most companies in the industry will shy away from these types of transactions.
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