When the economy grows, small- and medium-sized manufacturers and wholesalers may begin to see a pickup in business. As a result, larger orders may come in, which can lead to a need for purchase order financing.
Demand for this type of lending agreement may rise in the coming months, as U.S. economic confidence increased in early September. Gallup's U.S. Economic Confidence Index reached minus-16, up from minus-18 in the previous week.
Jobs market fueling economic growth
Part of the reason the U.S. economy has been improving is the employment situation. According to the ADP National Employment Report, the private sector added 176,000 jobs in August.
"It is steady as she goes in the job market," said Mark Zandi, chief economist at Moody's Analytics. "Job gains in August were consistent with increases experienced over the past two-plus years. There is little evidence that fiscal austerity and Health Care Reform have had a significant impact on the job market."
Medium businesses led the way, creating 74,000 positions, followed by small businesses at 71,000 jobs and large businesses at 32,000. The service-producing sector continued to generate the majority of jobs, and all industries posted gains.
Consumer spending also aiding economy
Americans are the driving force behind economic growth, so when consumers spend more money, the economy benefits. It appears as though expenditures increased in August, with economists surveyed by Bloomberg projecting a 0.4 percent bump in retail sales, up from 0.2 percent in July.
Job and wage gains, coupled with an improvement in household wealth, helped generate the strongest pace of vehicle sales since 2007.
"There's some momentum here," Chris Christopher, U.S. economist at IHS Global Insight, told Bloomberg. "Wage increases, even though they're anemic, are outpacing price increases as long as those gas prices stay down. That gives consumers a little bit of spending power."
Purchase order financing market could benefit from strong economy
When economic growth accelerates, small- and medium-sized businesses could begin to see opportunities for growth. For manufacturers and wholesales, this might come in the form of orders larger than usually handled.
In such a situation, filling a big order could be game-changing, but smaller companies often don't have the resources to do so on their own dime. With that in mind, some sort of financial assistance will likely be needed.
Initially, small manufacturers and wholesalers may turn to a bank for a loan, but due to limited available capital or poor credit, their application may be declined. Fortunately, purchase order financing is available to provide assistance to small businesses.
This type of lending agreement allows manufacturers and wholesalers to obtain up to 100 percent of the funds needed to fill an order, which makes it possible to do business with big-box retailers such as Target and Walmart. Another major benefit of purchase order financing is the fact that it allows owners of these businesses to retain full equity as opposed to selling part of their company to financiers to fill an order.