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Introduction
Purchase Order or PO Financing allows businesses to obtain financing when they have received a Purchase Order from a client. This allows businesses to obtain working capital without having to apply for a bank loan. The process is also faster and the credit assessment slightly more flexible as the business has proof that the project has already been awarded.
Contents
of our enterprises, and as they mature,
drive deeper transformation.”
1. What is Purchase Order Financing?
Purchase Order Financing is a financing product offered directly by financing companies in Singapore.
Purchase Order Financing can be used for purchase of goods and manpower costing for projects that are awarded to the borrower. This is allows the business to obtain financing without taking a bank loan and the proceeds can be applied directly to the project.
2. What is the criteria to apply?
The criteria for applying for the Purchase Order Financing is as follows
| Criteria | Requirement |
|---|---|
| Company Type | Sole Proprietors, LLPs and Private Limited companies are eligible to apply |
| Shareholding | No Limitation |
| Incorporation Length | No Limitation |
| Has an Invoice for Goods or Services been issued? | Yes |
All businesses incorporated in Singapore who have have a Purchase Order awarded or about to me awarded can apply.. The requirement for Purchase Order financing is that a PO has to have been issued or is about to be issued and the borrower waiting for financing before starting the project.
3. How and Who do I apply to?
To apply the following documentation is required, but not limited to
| Documentation Type | Required? |
|---|---|
| 6 months company bank statements | Yes |
| 2 Years Profit Loss and Balance Sheets | Yes |
| 2 Years Director’s Notice of Assessment (Income Tax) | Yes |
| Director’s NRIC | Yes |
| Signed Application Form | Yes |
| Purchase Order | Yes |
Purchase Order Financing is based on the total value of the purchase order. Financiers can give up to 50% of the purchase order as financing.
Lastly, a write-up or justification for the purpose of the loan in required. Should you be applying through Equity, we will do this for you.
Are you lacking or unsure of the documentation required? Click here for a specialist to do the work for you.4. Some lenders that offer
Purchase Order Financing are below
| FINANCIAL INSTITUTIONS |
|---|
| CIMB Bank Berhad |
| DBS Bank Ltd |
| Maybank Singapore Ltd |
| Oversea-Chinese Banking Corporation Ltd (OCBC Bank) |
| RHB Bank Berhad |
| Standard Chartered Bank |
| United Overseas Bank Ltd |
The banks above are able to do Purchase Order Financing or a similar financing product.
In addition there are a basket of private lenders who are able to structure Purchase Order Financing at reasonable rates.
5. How much Can I Loan?
Businesses can loan up to 50% of the Purchase Order Value or Up to S$1,000,000 whichever is lower.
Should businesses require additional funds aside from Purchase Order Financing , they can apply for the SME Working Capital Loan or the Temporary Bridging Loan which allows businesses to borrow also up to S$1,000,000 and S$5,000,000. This is also useful for businesses seeking additional cashflow or for business expansion.
Collateral might or might not be required for Purchase Order Financing, and in certain situations a confirmation that the Purchase Order has been issued might be required
The financing amount is calculated on based on a LTV (Loan-to-Value) on the Purchase Order which can go up to 50%
The following table illustrates how much funds you can obtain by Purchase Order Financing
| Purchase Order Value | Loan To Value (“LTV) | You Receive | |
|---|---|---|---|
| $50,000 | 50% | $25,000 | |
| $100,000 | 50% | $50,000 | |
| $200,000 | 50% | $100,000 | |
| Interest is calculated on the amount received and there is usually an origination fee on the total purchase order amount | |||
Different Lenders offer different LTV and Interest rates. To find out more about Purchase Order Financing and to obtain a high LTV and financing amount let Equity help you.
6. How Long can I loan for?
The maximum tenure of the Purchase Order facility depends on the project length of the purchase order, including credit terms given to the client. In certain scenarios, where the project is broken down into different batches, the funds might be repaid in different batches.
An illustration of the repayments is in the table below
| Loan Period | Total Amount | Interest Rate (%)/Month | Repayment Amount |
|---|---|---|---|
| 30 days | $100,000 | 1 | 101,100 |
| 60 days | $100,000 | 1 | 102,200 |
| 90 days | $100,000 | 1 | 104,400 |
| No Early Repayment Penalty | |||
*monthly repayments might vary and are subject to change
At the end of the payment terms, the business is supposed to ensure that their customers pay on time to the specified account. Unlike a Working Capital Loan, Purchase Order Financing is a short term financing product which requires clients to make payment by the end of their payment terms. Late payment may result in additional costs and in addition the funds are meant only to be used for that specific project.
7. What are the interest rates like?
Interest Rates depend on the lender but are in the range of 0.5% to 1% per month. The interest rate is vastly different by the different lenders in the market. Equity Capital Solutions can assist you to identify the lender with the lowest rate and provide a smooth and seamless application. Please click here to have a specialist assist you.
8. What happens if I decide to pay early?
For Purchase Order financing, if the project completes earlier and you make an early repayment., the interest is calculated to the day that the repayment is made and pro-rated accordingly. Hence it is always advisable to secure payment from your clients sooner than later or complete the project as soon as possible.
9. What if I need more than the amount approved?
The amount for the of financing depends on the value of the purchase order up to 50%. Businesses are only able to apply to one lender for each purchase order . This means that if you finance an a Purchase Order lender A, you are unable to finance it again with lender B
If you require more than S$1,000,000 you can apply for the SME Working Capital Loan, (“WCL”), Temporary Bridging Loan (“TBL” ) which goes up to S$5,000,000 or the Business Term Loan offered by banks
10. What happens if I don’t qualify?
Don’t qualify for Purchase Order Financing? Don’t worry! Businesses still have access to Working Capital and Temporary Bridging Loan as well as SME Micro Loan for Business loans in Singapore
Equity Capital Solutions can assist to identify why the your application was not eligible for the WCL and assist you again for a successful application.
For greater credit amounts up to S$5,000,000, you might want to explore applying for the Temporary Bridging Loan.
Conclusion
In summary, Purchase Order Financing can be a very useful product for businesses seeking to increase their cash flow or for business expansion without taking on an additional business loan. It can be done on an adhoc basis, giving businesses the flexibility to decide when to use such a facility. This is an important financing product for businesses looking to grow with cheaper capital costs and should be considered for every business.
How It Works
- Make a Free Enquiry.
- An Equity financing specialist will reach out to you for some simple details.
- We work together with you for the documentation.
- You relax and we do the heavy lifting for you.
- We contact you when its approved for signing down the loan.
