New Venture Lab: Equipping Christian Entrepreneurs

Help! I Need Working Capital Right Now!

Question

I am about to launch full-scale with a product at my industry’s largest trade show this weekend.  I do not have enough capital to finance the scale up and production likely required by the sales my product and booth at the trade show are likely to generate with nationwide distributors (I've already had a lot of interest and some advance orders).  Do you know or recommend people or companies that will make short term loans based upon Purchase Orders?

Answer

Nearly any business bank will extend Working Capital Loans or Lines of Credit (also called "Revolving Credit Lines" or simply "Revolvers") to a legitimate company that has received orders, so I don't think you will have a huge struggle with that, especially if you have some collateral to offer -- such as manufacturing equipment -- in addition to the Purchase Orders or "P.O.s".

Ideally, you would have been cultivating a relationship with a bank prior to this point, but that's ok.  At this point, make the sales, get the P.O.s and then go shopping for your working capital.  Legitimate P.O.'s make a huge difference.

You will need to have a solid, credible financial plan or "model" that shows clearly how your business operates (or will operate) and your ability to make sufficient operating profit to repay the Line of Credit.

You may also want to consider charging your large customers a deposit for large initial orders.  It is not at all unheard of for new companies that have a "wow" product to talk their distributors into P.O. deposits.  You just have to be careful not to spook them, so perhaps you have a sliding scale, e.g. a 25% deposit for any order over 10 units, 50% deposit for any order over 25 units, etc.  You would likely also tie a price discount to the larger volume order, so the distributor understands the value of the entire deal: write a large order and make a deposit, but get special treatment and a price discount. 



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