There are about 6,500 medical device companies in the US, and surprisingly most of them are small and medium-sized businesses. Majority of these medical companies have less than 50 employees. Also, many of them have little or no sales revenue yet. This is especially true for start-up companies, which make financing almost impossible. But that’s where purchase order financing for medical companies can help.
The Need for Financing for Medical Companies
The world medical device market is huge, but the US market remains the largest. It has a market size of $110 billion, and it’s projected to increase to $133 billion by 2016. The US has a net trade surplus with exports exceeding $44 billion in 2012. It also directly employs 400,000 Americans directly and about 2 million workers, indirectly.
But the entire industry is in trouble, due to the health care crisis and subsequent public policies. That includes a rather harsh 2.3% excise tax. It requires the payment of an additional $1 billion from the medical device industry. What’s harder to accept is that the tax is based on gross sales.
Imagine that you have gross sales of $1 million and your profit is only $100,000. Since the tax is based on the gross sales, that means you need to pay the government $23,000. You lose almost a quarter of your profits on tax!
Purchase Order Financing
With purchase order financing, the PO serves as a guarantor that the advanced loan will be paid. What’s important here is not the credit worthiness of your medical company. All you need to demonstrate is that you can fulfill the order. What’s more important is that the customer who made the purchase order can be trusted to pay the bill once the order has been delivered.
The lender can advance as much as 50% of the value of the purchase order, but some lenders may offer more. The typical financing rates average at about 3% per month (30 days). The rates are applied on the funds used—the lender pays the suppliers of the medical device company directly.
Benefits of PO Financing
In the medical industry, supplies and equipment form an integral part of adequate health care. Knowledge is well and good, but to help patients you also need supplies such as gloves, as well as expensive equipment like MRIs and CAT scans. There will always be a high demand for such modern devices.
As you can see, the main benefit of purchase order financing for medical companies is that you get the money you need to complete a purchase order. You don’t have to refuse a client simply because you don’t have the money to buy your raw materials and supplies. Refusing such orders can be costly for your business and it can mar the reputation of your company. You can also miss out on future purchase orders after you’ve met this first order. Financing a medical company these days may be difficult, but options like PO financing are always available.
