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Purchase order and contract financing

Money to fill a specific order or contract you have won but cannot afford to carry out, repaid when your customer pays. The SBA backs one version through banks; specialist finance companies offer others on their own terms.

L3 · Specialist secured debtRegulation dependsLast checked: October 20, 2026Something wrong or out of date?
Cost band
L3
Specialist secured debt
Speed
Weeks
Amount
Up to $5m
Term
Until the order or contract is paid; SBA Contract CAPLines up to 10 years, with each contract repaid as it is paid
Ownership
No shares given up
Security
  • Secured on invoices
  • Personal guarantee likely

How it works

You have a confirmed purchase order or contract from a business or government customer, but you need cash for materials, goods or labor before the customer pays. Purchase order or contract financing lends against that order rather than against your past sales.

Through a bank, with the SBA (Contract CAPLines). Under the SBA's rulebook (SOP 50 10 8.1), a Contract CAPLine pays the costs of one or more specific contracts, including the overhead that belongs to them. A purchase order counts as a contract when it is issued under a master agreement and the two together bind your customer.

  • How much: up to the contract's costs (not your profit), within the CAPLines limit of $5 million. For a contract with several payments, the line covers 20% more than the largest cash shortfall you project.
  • How it is paid out and back: the lender pays out as the work goes on, not in one lump sum, though it can pay for all the materials up front to get a volume or prompt-payment discount. Your customer is usually told in writing to pay the lender directly (an assignment of the contract proceeds), and each payment goes first to interest and then to the balance.
  • What it cannot pay for: permanent working capital, equipment, refinancing, or a contract on which significant work has already started.
  • Who can use it: a business that has profitably completed similar contracts and can price and carry out the work, under the SBA's usual 7(a) rules, including that every owner and guarantor is a US citizen or US national. See SBA lines of credit.

Export orders have their own programs: the SBA's Export Working Capital Program and EXIM's working capital guarantee.

Specialist finance companies also offer purchase order financing outside the SBA, on their own terms. No public body describes how these deals usually work or what they cost, so read the agreement for who pays your supplier, who collects from your customer, every fee, how long the money is outstanding, and what happens if your customer pays late or does not pay.

Upsides and downsides

Upsides

  • Lets you take an order larger than your cash would allow
  • Based on the order and your customer, not only on your past results
  • The SBA version has the 7(a) rate caps

Downsides

  • Pays only the costs of a specific order, never your profit or general expenses
  • Your customer is usually told to pay the lender directly
  • Specialist deals can be costly, and no public body publishes their prices

Risks

  • If you cannot complete the order, or your customer rejects the goods, you still owe the money
  • If your customer pays late, interest and fees keep growing
  • On SBA lines, owners of 20% or more usually guarantee the loan personally

What it costs

How it is priced
Interest or fees on the money advanced for the order, set by the lender; SBA Contract CAPLines are capped at the prime rate plus 3 to 6.5 percentage points
Costs that are easy to miss
  • On an SBA line, an upfront guaranty fee (0.25% of the guaranteed part for a line of 12 months or less, more for longer ones), often passed on to you
  • Fees that grow the longer your customer takes to pay, where the agreement charges by the month
  • If your customer does not pay, you still owe the money

Up to the costs of the order or contract, not your profit. SBA Contract CAPLines are up to $5 million.

Does it fit?

Could fit when

  • You are growing and have won orders or contracts from business customers that are bigger than your cash can carry
  • You have an export order to fill and need cash for the goods before the buyer pays
  • You have a contract with a federal agency and need money to carry it out

Unlikely to fit when

  • Your customers pay upfront or by card, so there are no purchase orders to finance
  • The business has no sales yet, so it has no record of completing similar orders
  • You need more than $5 million

Who can use it

  • Business types: Sole proprietorship, Partnership, LLC, S corporation, C corporation, Benefit corporation, Cooperative
  • Needs sales (revenue)
  • Only for businesses that sell to other businesses
  • A confirmed purchase order or contract from a creditworthy business or government customer
  • A record of completing similar orders or contracts at a profit
  • For the SBA's Contract CAPLines, the SBA's 7(a) rules, including that every owner and guarantor is a US citizen or US national

Am I ready?

What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all asset-based and specialist lending

Ready

0%

0 of 4 ticked

Next to prepare
  1. Purchase orders or contracts
  2. Cost schedule for the order
  3. Record of similar contracts

Regulation and protections

Regulation depends

Regulators: U.S. Small Business Administration (SBA); Federal Trade Commission (FTC); State lending and financial regulators.

Who runs it: Private providers, nationwide.

SBA rules set the rate caps, fees and uses for Contract CAPLines. Federal Truth in Lending rules do not cover business finance. The Equal Credit Opportunity Act (Regulation B) covers business credit. The FTC Act bans unfair or deceptive practices by finance companies. For state disclosure laws on loans from lenders that are not banks, see business lines of credit.

Types of provider: Banks that make SBA CAPLines; Specialist purchase order finance companies; Factoring companies that buy the invoice once the order ships.

Also consider

Compare these side by side

What has changed

No changes since this page was published. It was last checked against its sources on October 20, 2026.

Every change across the site

Sources

  1. SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026): Section B, Chapter 4, 7(a) CAPLines, and Appendices 16 to 18 · checked October 20, 2026
  2. 12 CFR 1002.9 (Regulation B): notifications, including to business credit applicants · checked October 17, 2026
  3. 12 CFR 1026.3 (Regulation Z): exempt transactions, including business credit · checked October 17, 2026

Something wrong or out of date?

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