Small business owners and entrepreneurs need funding. Funding helps them scale their businesses, afford stock or equipment and be able to pay employee wages. Sometimes, funding is used to fulfil certain contractual obligations, for this, you will need purchase order funding.
Purchase order (PO) funding is working capital funds to allow you to fulfil a purchase order. Purchase order funding can cover 100% of the costs. The money is paid back to the lender once you have done the delivery, and you have received payment from the contractor.
In South Africa, businesses typically use purchase order funding to fulfil government tenders. If you can’t afford to complete the tender, a purchase order loan can help. You can repay the loan after the government pays you.
In this article, we discuss what PO funding is and which lenders are available for you to get funding.
How Does PO Funding Work?
As explained above, PO funding helps you fulfil orders, or in this case, tenders. In simple terms, the lender buys the goods on your behalf and once you have gotten paid for your work, you must pay back the lender.
Getting PO funding is not as easy as just having a tender. You will need to meet certain qualifying criteria, for example:
- Your business must be a distributor, outsourcer, reseller, wholesaler or business with heavy seasonal sales patterns.
- Must have a good cash flow.
- Trading history of at least one year/12 months.
- Generate a certain amount of revenue per annum.
- Your contractor or customer must have good credit.
- The delivery date of your purchase order must be reasonable.
- Some lenders will require that the purchase order be above a certain amount.
Note: For purchase orders, some lenders do not look at your credit score. However, it’s an advantage for your application if your credit is in good standing.
Repayment Terms for PO Funding
Before you send in that PO funding application, you need to know if you can repay the loan. It’s important that you can repay your loan because failure to do so can affect your credit score, leading to lenders not considering you anymore.
Some of the common repayment terms include:
- Your gross profit margin must be above a certain percentage. Your lender will let you know the percentage.
- A flat fee is charged on the loan that you need to pay back. This helps facilitate the capital to complete the purchase order.
- If your supplier is not VAT registered, the VAT costs will be on you.
- Additional costs include VAT cost transfer.
Note: Different lenders have different repayment terms. Ensure you pick the lender that has the most favourable terms for you and your business.
Where To Find PO Funding
Let’s look at some lenders with PO funding available. Using this information, you can pick the right one for you and get going on that purchase order.
Kenote Finance
Kenote Finance is a lending platform that specialises in loans for small businesses. The company also has a PO funding option. To qualify for the Kenote Finance PO funding, you need to meet the following criteria:
- Be in possession of a valid purchase order.
- Your company must be registered with the Companies and Intellectual Property Commission (CIPC).
- Have valid Financial Intelligence Centre Act (FICA) documents.
- A quotation from your supplier.
- A valid copy of your ID.
- A valid Request for Quote (RFQ)
If you meet all these requirements, you can begin your application. To apply for PO funding on Kenote Finance, you must fill in the online form. On this application form, there is also a way to upload the required document.
Once you have applied, Kenote Finance will get back to you within 24 hours.
Note: Repayment periods for Kenote Finance range from 30 days to 60 days.
The People’s Fund
The People’s Fund is a purchase order funding crowdfunding platform for businesses that have orders with the government and corporate entities.
To qualify for PO funding from The People’s Fund, you need to meet the following criteria:
- Your business must be 51% black-owned.
- You must have a valid BEE certificate or affidavit.
- You must require capital to execute a valid purchase order.
- Your project must have a 20% gross profit margin unless the purchase order value is R 50 000 or less.
- Your client must be on The People’s Fund preferred client list.
To apply for PO funding from The People’s Fund, you will need to complete the online application. You will enter your company’s details and upload the required documents.
Repayments on The People’s Fund
For a purchase order through The People’s Fund, you will need to pay the following:
- You must pay the supplier VAT cost transfer.
- Purchase order facilitation fee (6% plus VAT of the purchase order if PO margin is 30%).
- You must pay the Stokvel membership fee (if you are not a member of The People’s Fund).
These two platforms are best for PO funding. There are other PO funders such as Sourcefin and Bright On Capital. It’s up to you to choose the right lender for your funding needs.
So, if you have a purchase order to fund, you now know where to find the right lenders. If you are interested in getting into government tenders, this is how you will fund your projects.
Contact the lenders and begin making a profit for your business today!
