The Complimentary Financing Source

In the life of every business, there is a time when more financing is needed than can be obtained through traditional sources. Historically, these sources have been unsecured, and secured financing as well as some form of equity contribution. Today, there is an additional resource, transaction finance, often referred to as purchase order financing, commonly used to obtain up to 100% of inventory financing. This type of lending is perhaps one of the least understood, and yet, one of the more creative means of acquiring additional funding in today’s financial marketplace.

While every circumstance is unique, the usual scenario involves a situation where more money is needed than a senior lender will provide. Typically, the funds are needed by the borrower to buy inventory to satisfy customer purchase orders. In this instance, transaction capital is made available to purchase the necessary inventory. Specifically, the transaction lender enters the relationship providing up to 100% of the inventory financing and exits, as the inventory is shipped, or upon collection of the accounts receivable. If there is a receivable lender, accounts receivable financing is used to repay the transaction financer’s investment. If there is no receivable lender, repayment comes from the proceeds of collection of the accounts receivable. In either case, the balance of the proceeds can be used to satisfy additional working capital requirements of the borrower. Transaction financing allows a company to make sales and achieve a level of earnings that would otherwise not be possible.

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