A business is run smoothly if it has a proper and strong flow of finance to funds its regular needs. Be it paying for employees or purchasing raw material for your business, every time a business needs funds. The biggest need of funds for businessman in India is in terms of working capital. Businessmen require working capital for their current and immediate needs. But there are even specific needs in terms of working capital.
Many businessman works as suppliers of products and services. They have to purchase the goods from the OEM i.e. Original Equipment Manufacturer. They purchase the goods from OEM, sell to the customer who has placed an order, earn money from the transaction and payback to the OEM later. But almost all the time the OEMs ask for the finances in advance as even they require capital to make the desired product at their ends. If the order is huge, businessmen can’t produce huge funds from their saved profit margins. This may lead for them to miss out on big orders and loyal customers. So instead of facing a total loss, businessmen can opt for a business loan against their purchase order or invoice given by the OEM. This loan is known as ‘The Purchase Order Business Loan’.
When a customer places an order, the supplier (businessman) asks the OEM to manufacture the product. The OEM provides the supplier (businessman) an invoice which he eventually forwards to the bank. The bank keeps the invoice as collateral and gives almost 80% of the said amount as business loan. This way the supplier (businessman) pays the OEM, who makes the required product and delivers to the supplier (businessman), who finally delivers it to the customer who placed the order. The customer pays the supplier (businessman) the amount of the product, the supplier (businessman) then pays off the dues to the bank and the rest is considered as profit.
Features and benefits of the purchase order business loan:
1. Flexible Tenure:
The banks and NBFCs offer flexible tenure to pay off the purchase order business loan. This tenure ranges from 30 to 60 days as per the company profile, amount required and the mode of the business.
2. Loan Amount:
Like any other business loan in this loan too banks and NBFCs offer nearly 80% of the value of the invoice given by the OEM. It’s very sufficient for the businessmen to do the business. This amount ranges from Rs. 5 lakh to Rs. 1 crore.
3. Loan Repayment:
Many banks and NBFCs offer easy EMI options as well as onetime payment option to the borrower. By opting for onetime payment option, the borrower can pay off the loan in one singular installment by avoiding the extra interest rate.
4. Quick Approval And Disbursement:
The banks and NBFCs check the documents and eligibility criteria before approving the loan. If the borrower has fulfilled all the requirements, the banks and NBFCs approve loan as quick as within 72 hours.
5. Minimum Documents:
Banks and NBFCs have a specific list of documents to approve the purchase order business loan. They need bank statement, business proof, KYC details of the company and the applicant, invoices, VAT returns and sales ledger.
Check your eligibility here to get the purchase order business loan!