What do you do if you have customers ready to order merchandise but your bankers won't give you the loans you need to purchase the inventory? You've hit your credit limit, your banker says, and your balance sheet and collateral won't justify more.

Fortunately, as David Engel, CEO of Trendsellers Ltd., has learned, there are niche players who make businesses out of lending money against purchase orders. Engel, whose tote-and travel-bag import company has revenues of around $3 million and is located in Stamford, Conn., has been financing orders that way since he launched his company, three years ago.

Because of the level of trade expertise and administrative support needed to make the deals work, not many deal makers get involved in purchase-order transactions (sometimes called "pre-inventory" financing). Those who do usually have industry preferences. (See table below.) The deal structures, however, are often similar.

A business with a source for shoes from the Far East, for instance, might get a $100,000 purchase order from a large retailer. With the help of a purchase-order specialist, a letter of credit would be issued to the foreign manufacturer. To limit its risk, the financial company (as opposed to the client) might become the importer of record, and the shoes might go directly to the retailer's warehouse. As for payment, the financial company might ask the retailer to pay it directly or to send the money to a post-office box; all the transaction-related fees (for the letter of credit, transportation, insurance, interest, and any commissions) would be deducted before the import business gets what's left.

In contrast to traditional bank deals, companies and banks handling purchase-order deals tend to look more to the credit of the client's customer (often a retailer) than to that of the client. And they'll want to assess the foreign supplier's performance record on quality and meeting deadlines before putting themselves at risk.

This type of loan is usually more expensive than bank financing, but, as Engel of Trendsellers says, he receives not only money but expertise. "We get a lot of back-office support, without which we'd need to hire more people."

-- Bruce G. Posner

Typical Minimum Type of

Source Client Transaction Goods Pricing

Trading Alliance Merchant, wholesaler, $75,000 Manufactured goods, 1%-2.5% of cost of

212-953-0400 importer, or exporter non-perishables goods per month

Bristol Trade Finance Wholesaler or $25,000 Consumer goods, Flat 2%-7%

214-528-2888 distributor industrial products

Imperial International Wholesaler or $500,000 Nonperishables Flat 6%-13%

213-965-6200 distributor per year