Purchase Order Loans for Canadian Businesses

Knowing where to find corporate financial leverage is one of the more important things businesses should understand if they want to survive tough economic times. The reality is that running is a business is far from easy, and at certain times of the business cycle, they would need to leverage on debt instruments and other financial tools. A study published in Statistics Canada highlights how, in a period of 3 decades, corporate financial leverage has increased by almost 50% for both Canada and the United States. This data is very telling, and it suggests that businesses are really using debt instruments more and more.


Understanding purchase order loans

While there are many debt instruments that businesses can choose from, turning to purchase order loans is probably one of the easiest options. Purchase order loans for Canadian businesses allow you to take out a ‘loan’ or increase your working capital tremendously based on what purchase orders or invoices you have.

Unlike a typical loan where you borrow money from a bank, this is not a debt per se that you have to pay for after a certain time period, interest included. What you’re essentially doing is taking advantage of the invoices you have that have not yet been paid by your clients, and trading these invoices for the cash that you need right now.


The working capital advantage

Purchase order loans for Canadian businesses are important because they give you the working capital advantage. When all your capital is tied down on invoices that have a lot of value but give you nothing in terms of current liquidity, where will you get the money you need for your operational expenses?

Through purchase order financing, you get the working capital you need because you trade those invoices for cash. With this working capital, you can then fund operational expenses you need in order for the business to thrive and grow. This includes purchasing new equipment, investing in the training of your people, or simply completing a huge order that needs additional investment in shipping and transportation. You can’t let your lack of working capital bog you down because purchase order financing is readily available for you.


Who needs purchase order financing the most?

All kinds of businesses will reach a point in the cycle when working capital is a challenge and some intervention on financing needs to be done. But the types of businesses that need purchase order financing the most are those that regularly deliver large orders, such as manufacturers, distributors, and exporters.

In Canada, statistics show that in 2009, 86% of Canada’s exporters were small businesses. These small businesses also accounted for $68 billion in exports. And while a large multinational company would most likely have very deep pockets and a lot of assets, a small business would need purchase order financing to ensure that these orders are delivered. This is why small businesses tend to need purchase order financing a whole lot more.