Getting your bank to finance your next LPO/contract (1)

By Emeka Anaeto

OVER the past three months we have been discussing business loans in general, how to prepare your business for it and other requirements by the lenders, the banks.

We are now focusing on what is generally called local purchase order (LPO) financing, a special kind of business loan, a short term loan.

An LPO or PO (purchase order) is a commercial document, an official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. Companies use LPO to manage the purchasing of products and services from external suppliers.

For the purpose of a business loan, where the supplier who is the beneficiarky of the LPO needs funding to be able to execute the supply order, it is important to have in mind the basic properties of a standard LPO.

An LPO should be legally binding agreement/ document between a supplier and a buyer. It should detail the items the buyer agrees to purchase at a certain price. It should also outline the delivery date and terms of payment for the buyer.

Therefore, LPO finance is a short term facility banks or other financial institutions provide to enable businesses meet up with the financial capability required to execute work or supply orders (LPOs) from their respective clients on time or as required by the terms.

LPO financing empowers a businessman who has obtained purchase orders or letters of award of contract to deliver goods and services or to carry out contractual works.

Just as every agreement has its terms and conditions, there are some criteria which you will need to meet in getting your bank to finance your LPO or contract. While the details may vary from bank to bank, the general criteria can be grouped into four main categories: Your credit worthiness, Payment Ability of the Issuer/Contract, Commitment and Ability to execute the LPO/ Contract.

 

Next week we look at what the banks require on each of these categories.

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