Drawbacks of Purchase Order Financing

Purchase order financing is a type of financing tool that is commonly used by small businesses in order to come up with the money that they need for operation. While this type of financing can give them access to money, it can also have some drawbacks. One of the biggest drawbacks of this type of financing is that you have to have good credit in order to be approved. If you are a new business, you may not have developed a substantial credit file yet. This means that it could be difficult to obtain the financing that you need.


Another drawback is that many new business owners look at this type of financing as a short-term solution. They think that they can use purchase order financing for a certain amount of time, and use it until they start making more money. The only problem with this is that they become dependent on the system. It can be difficult to get away from this cycle because the business will have to continue to borrow money and pay interest which will cut into their bottom line. If a business can get by without borrowing money at the beginning, they will usually be better off once they become established.

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