Is Purchase-Order Financing for You?
Say you’re a small-business owner and you need cash. But every time you drop by the bank to ask for credit, the loan manager hides under his desk. What do you do? Well, there’s your credit card (expensive) or your brother-in-law (embarrassing). Or you could do what many business owners are doing these days: sell your purchase orders. As the New York Times reports, purchase-order financing is a fairly new wrinkle on the age-old practice of factoring. And it’s increasingly popular among small businesses. It works something like this. Say you run a startup garment-supply business and you land a bonanza order from Target: 1 million Jonas Brothers T-shirts. Being a startup, you can’t get credit from a bank to pay some overseas maker to knock out the shirts, so you take your Target purchase orders and sell them to a PO financer. He pays for the manufacturing and shipping, gets his money from Target, takes his (sizable) cut, then gives you the rest. (Then the T-shirts languish on the rack, because kids are, like, so over the Jo Bros, but that’s not your problem.)
Why small businesses are PO’d. Purchase-order financing is on the rise, of course, because bank loans are scarce. And why are banks not loaning? Because there’s less demand, because it’s riskier nowadays. And because they don’t feel like it. President Obama tried the carrot, to no avail. And lately he’s been trying the stick. Nothing works. The Volcker rule, his most recent effort to get banks out of the trading business and back to the banking business (now there’s a thought) looks to be DOA in the Senate.
Why does Washington keep shooting blanks? For all the populist outrage over bank excesses of the past few years and popular support for regulations to rein in big-bank risk-taking, Congress has so far passed new rules numbering...zero. But that’s nothing new. Government historian Alan Brinkley has pointed out that Congress hasn’t solved a significant national problem, from healthcare to education to infrastructure, in three decades. Why? Because their campaigns are not paid for by voters but by special interests that kinda like things the way they are. And because Republicans now must accommodate a large bloc of loons who would rather eat mushroom quiche than see Obama get his way on anything.
Obama is a quiche-eating Bolshevik space alien. A recent poll by Daily Kos of 2,000 Republican voters found that a whole lot of them think the president is a socialist (63 percent), a foreigner (36 percent) and should be impeached forthwith (39 percent). But that’s not the really discouraging part. The really discouraging part is people who can't spell a picket sign are influencing national policy. “This is why it’s becoming impossible for elected Republicans to work with Democrats to improve our country,” said Markos Moulitsas, founder and publisher of Daily Kos. “They are a party beholden to conspiracy theorists. Given what their base demands, it’s no wonder the GOP is the party of no.” (And that’s your ballgame.)
