With purchase order financing (P.O. financing), capital is extended from a third party directly to a supplier, with payment later upon delivery from the end user. Funds go to the supplier to fill the order rather than to the business to use for other purposes.
Inventory financing functions similarly to A/R financing except finished goods are used as collateral instead of invoices in exchange for working capital.
P2Binvestor focuses primarily on receivables financing, although we can consider finished inventory in some cases. We also work with a community of partners to offer additional financing options (such as P.O. financing).
- Access to capital for growth: We’re ready when you are. We combine crowdfunding and our proprietary technology platform to get you the cash when you need it. Get up to $10M in financing in as few as 15 business days. We can also accommodate line increases quickly for a 1.5% fee.
- Transparency: Unlike many of the others, we’re upfront with our fee structure. There is no misleading fine print or other “trickery” that works to push effective rates above what is advertised. We charge a daily, non-compounding rate only on what you use.
- Rate decreases over time: In general, discount rates reflect risk and risk can change. As your business gets more profitable, gets bigger orders and expands into larger markets we will review your discount rate and consider reductions as appropriate.
- Financial partnership: Your success is our success. Between our Operations Team with their experience across a broad range of industries, and our proprietary online dashboard (Lending Hub), we provide our clients with the real-time data, financial support, and insight that helps get them to the next level.
While bank term loans or lines of credit (LOCs) can offer lower rates, they can be difficult to get due to federal regulation, internal controls and a traditionally risk-averse credit posture, especially when it comes to working with new businesses. Banks typically impose restrictions on how you spend loan proceeds, and often charge additional fees; beyond the basic interest rate there can be annual fees, line fees (for LOCs) and others. By nature, banks are also much slower to approve and fund by weeks or even months, and/or increase, an LOC—which means your business can’t scale as quickly.
Want to learn more about term loans vs. lines of credit? Take a look at our ebook.
- Make your cash flow smoother and more predictable.
- Increase your ability to fill new and future orders.
- Avoid being limited by slow-paying customers.
- Use the capital as you need to grow your business, free from the use-of-funds restrictions imposed by many banks and other lenders.
Company X—a granola company—must pay upfront for materials, production, and shipment to stock shelves at Whole Foods. While Company X waits to get paid, a big order comes in from Safeway. Without payment from the first order, Company X doesn’t have the funds to cover the upfront costs of the new order and will risk losing the opportunity to work with Safeway and grow its business.
Company Y—a staffing company—is responsible for paying its employees on behalf of its clients ahead of receiving payment itself. Company Y typically floats payroll anywhere from five to 30 days and needs operating cash to keep the business running while it waits for payment.
You can also watch this 90-second overview to learn how businesses use our line of credit.
1. Qualification: This starts with you. Just contact us online via our Get Started form. You can also call us at 720-361-1500. We will work with you to better understand your business needs and determine if you are eligible for our LOC products.
2. Application: If you qualify, your next step will be to provide the following documentation (listed below) so that we can explore what lending options work best for you. P2Bi will then issue you a Term Sheet.
- Balance sheet, as of the end of the last closed month.
- Balance sheet, as of the end of 2016.
- Income statement (P&L), current YTD (through end of the last closed month).
- Income statement (P&L), full year 2015.
- Income statement (P&L), full year 2016.
- Accounts receivable aging report, current YTD (through the end of the last closed month).
- Accounts payable aging report, current YTD (through the end of the last closed month).
3. Term Sheet. The term sheet is non-binding and outlines the terms of the facility, including effective rate and preliminary line amount based on current A/R balance, revenues, strength of payors and a few other factors. By signing the term sheet, you authorize P2Bi to begin an underwriting review in anticipation of completing a final comprehensive borrowing agreement.
4. Underwriting. The credit underwriting process takes about five to ten days and once completed successfully, means you’ve made it!
5. Onboarding. The final, but important step. We provide a one-hour tutorial of the Lending Hub and an introduction to the Client Success Team. These are the folks that will be working with you to manage incoming payments and your outgoing capital. They want to see you succeed as much as you do!
- Your company must have a minimum of $250K outstanding between A/R and inventory.
- Your company must be US-based with US or Canada-based payors.
- Your company can NOT be a sole proprietorship.
- Your company has approximately $1M in revenue and is growing.
- Your customers are all or mostly Business to Business.
With our proprietary technology platform, our investors can advance and withdraw funds on a day-to-day basis. This gives P2Bi significant advantages in lending flexibility and speed over banks and other capital providers.
Importantly, when clients perform well, investors take notice and are more likely to support further progress through additional investment.
Company Z has a line set up for $500K to fund the production of its nutrition bars. Recently the company learned that Whole Foods wants to increase its shelf space, which will require boosting production capacity quickly.
With an additional Whole Foods invoice for $250K, Company Z requests a increase in line capital. Our Operations Team approves the increase, which is then reviewed and approved by our Credit Committee, and ultimately results in the expanded line becoming available quickly after Company Z’s request.
Behind the scenes, we use a third-party lockbox account to collect paid invoices. Our Operations Team processes and reports on invoices as they come in, and can update a company’s available line balance within a business day or two of invoice submission.
In most cases, you can draw up to 70-80% of the full value of your A/R and between 25-50% of the value of your inventory. This percentage depends on criteria such as the strength of your paying customers and whether your business is profitable. Specific terms will be reflected in your contract but can also be reviewed to make changes if and when appropriate.
- Medical insurance receivables due to insurance billing (medical device or service provider companies are okay, however).
- Perishable, unpackaged food such as fresh fruit.
Receivables from within the trucking industry (although logistics companies are okay).
- Construction where subcontractors and/or retainage billing is used.
- Consumer-facing receivables.
Specific costs for an Ex-Factor LOC include:
- A one-time origination fee (equal to 1.5% of your maximum credit line) that covers due diligence, underwriting and onboarding costs.
- A daily discount cost on outstanding principal.
On January 1, Company X borrows $100,000 of a $250,000 LOC at a daily discount rate of .0493%. Discount for January 1 is calculated as: $100,000 (principal borrowed) x .000493 x 1 day = $49.30.
On Day 1, Company X borrows $100,000 of a $250,000 LOC at a daily discount rate of .0493%. Discount for Day 1 is calculated as: $100,000 (principal borrowed) x .000493 x 1 day = $49.30.
At the end of Day 1, $100,000 (principal) + $49.30 (discount) = $100,049.30 outstanding.
With $100,000 outstanding, if eligible collateral becomes available to the credit limit of $250,000, an additional $150,000 can be accessed.
On Day 2, $35,000 in paid invoices comes in. These funds are first applied to the $49.30 in outstanding discount. The remaining $34,950.70 (or $35,000 – $49.30) is applied to outstanding principal of $100,000. This leaves $65,049.30 (or $100,000 – $34,950.70) in outstanding principal.
Discount on Day 2 is calculated as $65,049.30 (principal) x .000493 (daily discount) x 1 day = $32.07.
At the end of Day 2, $65,049.30 (principal) + $32.07 (discount) = $65,081.37 outstanding.
As mentioned previously, additional line capacity opens up as eligible collateral becomes available.
We saw an opportunity to disrupt the finance industry and replace dated, inconvenient ways of borrowing money with something much more simple, transparent and user-friendly.
No one else offers a product made by entrepreneurs, for entrepreneurs that not only provides business owners with the working capital they need, but it also provides them with financial insights they need to help their companies grow.
In fact, if you’re not sure how to compare other offers, we’re happy to help you sort through other term sheets to help find any hidden fees and clarify your exact cost.
With Ex-Factor, you can spend the capital on whatever you need to keep your business growing—payroll, inventory, bulk ordering, etc. Other lenders often restrict how you can use your funds – we don’t.
If you secure bank financing at a lower rate, we will make every attempt to match it within three days. If we can’t, you can leave your contract without penalty.
Banks can offer lower rates, but they can be difficult to secure due to federal regulation, internal controls, restrictive covenants and a traditionally risk-averse credit posture – especially when it comes to working with new companies. Banks tend to be generalists and may not have particularly deep insight into the needs of some types of growing companies.
Examples of banks include JP Morgan Chase, Bank of America and Citibank.
Alternative lenders provide capital to businesses who can’t or chose not to, get a loan from a bank. They include traditional accounts receivable factoring firms and firms that use other sources of collateral for security (real estate, equipment, etc.). When compared to P2Bi, many alternative capital providers offer higher fees, less transparency in pricing and unclear terms. Covenants can be limiting and client support, in terms of financial insight and online data and management, is often lacking. They also don’t have our entrepreneurial focus, which uniquely positions us in the lending market.
Examples of alternative lenders include BlueVine, Charter Capital and OnDeck.