Funding pre and post-revenue startups with purchase order finance

Funding pre and post-revenue startups with purchase order finance

Startup capital can be hard to find, taking many forms, most resulting in giving up equity or borrowing from family members.

If you’ve got the ability to secure strong sales orders from brand name corporates and can source product from reputable suppliers there’s a financing tool that’ll support your growth.

Purchase order financing is a form of “transactional equity”. It’s a financing tool that provides capital to pay your supplier for finished goods. Using the strength of the customer purchase order, funds are granted to get goods shipped and repaid once payment/s come in from your end buyer/s.

We call it “transactional equity” or “investment-based financing” specifically due to it not being a loan but rather charged as a percentage of each drawdown for a very short period of 90-180 days.

Each drawdown of funds is paired to your supply chain and payment cycle. This alleviates the need to adhere to any capital-draining repayments.

Instead, each advance to suppliers is “self-liquidated” by the end customer payment or in some cases the advance made by an invoice factoring company.

Startup case study

A pre-revenue startup contacted Stak with a business case to secure firm sales orders for German-made premium knives and cookware.

This entrepreneur was knocked back at every turn, and his finance broker had all but given up finding a solution.

The client researched Stak Insights and product requirements before applying. He then secured the license for Australia to distribute and with his extensive experience in the industry was able to gain indications of orders to bolster his package for offer structuring.

Stak was able to grant an initial facility limit of $100,000 to make supplier payments for air freighted deliveries of goods direct to Australian brand name retailers.

The broker’s client was able to secure funding without giving up equity, pledging property security or borrowing personally to establish a highly profitable distribution business from scratch.

Bridging the equity and debt gap

When it comes to startups, purchase order finance could be considered as a hybrid to equity.

It can be thought of as equity within each transaction and comes packaged with import/export transaction management expertise.

Funding can bridge a funding gap once larger than expected orders comes in or give the business the ability to pitch for larger sales knowing they have funding to make supplier commitments.

Once a business completes a few cycles of trading they are in a position to assess potential equity raises or approach traditional bank debt. A business owner will commonly prefer to leave the PO funder in place even with additional working capital sources in place as a backup for unexpected working capital commitments.

Need help fulfilling large sales orders? Ask Stak.

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We regularly share our thoughts on trade finance, lending, procurement, logistics, and international trading.

Stak provides working capital to clients that sell to some of the largest buyers in Australia & overseas.

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