What is E commerce Business Loans and How To Get
Running an e-commerce business has its benefits. You may have lower costs compared to a brick and mortar store, and it may be easier to reach your customer base digitally before digital.
You may have had financial problems before. In fact, according to an Intuit survey of 3,000 small business owners, “more than half of US’ small business owners have lost $ 10,000 or more by predicting a project or sale due to problems caused by insufficient cash flow ”.
That’s a lot of money. And that doesn’t even consider other potential growth opportunities that may have a small impact on your main line, such as launching your product line or investing in a full marketing strategy on social media.
Fortunately, there are many options available to help – from SBA loans to invoice submissions to the business line of credit. With business support, you can take advantage of growth opportunities, without having to spend money on hand.
This guide provides you with a typical small business loan, as well as what you need to know to navigate with e-commerce finance confidently.
Why Do You Need a Loan?
What can you do with an additional $ 15,000, $ 100,000 or an additional $ 500,000? How can you use that money to grow your business? The options are endless, but other reasons e-commerce businesses can apply for funding include:
- Extending to a brick and mortar area
- From the store alone to many markets
- Investing in marketing campaigns (SEO, paid search, blogging)
- Buying inventory in bulk
- Hiring more staff
- Reducing seasonal cash flow gaps
- Go international
- Paying producers for product orders
- Paying for daily operating expenses
- Updating your website
- Creating a mobile marketing app
- Renting a warehouse
- Technology development
- Repaying high interest rate debt
- So, before you start with anything, think about this: Why do I need a business loan?
How to get E commerce Business Loan In 6 Steps
1: Find out how much you need
It is important to specify how much money you need to achieve your growth goals for your e-commerce business. Therefore, before buying your creditors, ask yourself these questions:
- How much money will I need to borrow?
- How much loan can I repay?
- What is the return on investment (ROI)?
Apply to those numbers – incorrect estimates can lead to a business loan doing more harm than good.
2. Identify which type of loan meets your needs best
The financing of small businesses covers a wide range of areas, and one type of loan may be better suited to your needs than another. Below are some small business loans that you may want to consider to grow your e-commerce business.
1. Business term loans
Business time loan is your normal business loan. You get a lump sum, and you return it at a predetermined time. Lending loans usually have fixed interest rates, which means a predictive payment schedule that makes it easier to budget. With loans ranging from a few thousand dollars to $ 1 million, many turn to long-term loans to deal with big ticket items or major projects. However, you can use this method of financing almost anything.
Lending loans usually offer lower prices than other types of loans. But that is subject to conditions. If you have just started a business, you are out of luck – most full-time lenders want you to have at least two years under your belt. And if your credit score is below average, you may not be eligible, or at least, you should expect higher interest rates.
2. Business line credit
The business line of debt is the debt cycle that can be linked to cover normal, short-term financial needs. Unlike long-term loans, you only make payments and pay interest on the loan. And once you have returned the money you spent, you can draw on your line over and over again.
Here is an example: You are authorized by a $ 75,000 credit line. He pulls out $ 25,000 to cover the purchase of bulk goods. You will still be able to access the remaining $ 50,000, and once you have repaid the $ 25,000 you used (plus interest), you will be able to access the full $ 75,000 again.
The credit line is good to have in your back pocket as a safety net. It continuously provides you with cash to pay for any regular, temporary or ongoing project costs.
3. SBA loan
The Small Business Administration guarantees loans issued by affiliate lenders. With a 7 (a) loan plan, you can borrow up to $ 5.5 million. The SBA offers competitive terms and other affordable interest rates around the world, but the process is also known to be time consuming – in addition to a large number of papers, it can take anywhere from 60 to 90 days to get a decision.
4. Financial Inventory
In the case of a property-based loan, the financing of the property allows you to use the list (i.e., assets) you purchase to secure the loan. That’s great if you don’t want to put your personal belongings on top or you don’t have any other collateral to offer, and you need temporary financial support to put up your visible shelves.
Remember that lenders usually offer loans of between 50% and 80% of your inventory, which means you will need to come up with extra money to pay off the full cost. You will also need at least one year of business under your belt, and you may need to meet a certain loan amount, which can be up to $ 500,000.
5. Business credit card
A business credit card is exactly the same as a credit line, called a revolving credit card. The income you receive from time to time depends on what you borrowed and what you paid for. You only need to technically make small monthly payments. However, if you do not pay your balance every month, you are in danger of falling into debt. Interest rates are usually higher than other business loans or personal loans. There are also additional payments that can save you money such as annual payments, late payment penalties, and various APRs.
The best benefit of business credit cards is the ability to earn cash, miles, or points when shopping. Make good use of short-term financial needs, including small purchases and ongoing, day-to-day operating costs.
6. Merchant cash advance (MCA)
With a merchant’s prepaid cash, lenders pay you a percentage of your daily credit card sales. MCAs can easily be found in businesses that have a fair or bad credit or do not have a long working history. You can earn money in just a few hours, but remember, speed comes at a price. The standard APR payment by a merchant ranges from anywhere from 40% to 350% depending on the borrower.
7. Making invoices
Creating invoices allows you to borrow from your unpaid invoices to keep operations running smoothly. The funding company upgrades anywhere from 60% to 95% of the value of your invoices and takes the collection process. Once your customer has paid the remaining invoice, you receive the remaining amount (exclude feature fees and any other charges). Invoice factoring provides quick cash transfers during cash flow crunches. But borrowers beware – this type of money can quickly become expensive because of the cost, as well as how long it takes for your customer to pay.
When comparing financial options for a small business, be sure to look for details, including:
- Time to earn money
- Lower and upper borrowing limits
- Interest rate range
- Low fees
- Payment terms
- Security and personal requirements
- Safe or unsafe
- You will also need to consider how your credit profile fits into what the lender needs.
3: Check your debt
Debt can make or break your loan application. And often, high credit rating translates into low interest rates – which means more money in your pocket.
If you have not checked your personal or business credit recently, it is helpful to look. Doing so allows you to check for errors or inaccuracies that could be detrimental to your credit score. It can also give you a sense of how much you are eligible for funding and what interest rates you may qualify for. You may also find it worthwhile to wait a few months before applying to get your credit status up.
You can access your credit reports for free at AnnualCreditReport.com. Dun & Bradstreet lets you view your business credit report for free.
4: Determine your qualifications
Before you jump on the bandwagon, it is a good idea to first assess the minimum requirements for the lender. In general, lenders may set guidelines when it comes to things like:
- Credit scores
- Time in business
- Annual income
Remember that your cash flow is important as lenders want assurance that you will be able to keep up with your mortgage payments.
Also, note that the lender has specific requirements relating to the business models or industries in which it operates (or does not work) as well.
5: Collect your paperwork
There are some documents you need to include. Some require more than others, but it is never harmful to over-prepare. Before you start an app, have the following in hand:
- Personal and business information
- Personal and business tax returns
- Current personal and business bank statements
- Financial statements (profit and loss statement, cash flow statement, balance sheet)
It is also a good idea to write or update your business plan, although it may not be necessary. A business plan shows that you have done your research and that you have carefully considered the opportunity to grow and how it will affect your mind.
After comparing the lenders, the final step is to apply for a loan. Depending on the lender, you can complete the application and upload your supporting documents online in just a few minutes. It may take a few hours or just a few months to get a decision, depending on the lender.
Once you have been approved, be sure to review the loan agreement – line by line – so you know exactly the terms you are applying for. Pay special attention to APR. APR is the actual annual cost of borrowing money.
Why? Considering not only the interest rate but also any additional payments or charges incurred on the loan. It is the best metric you can use as a comparison when checking multiple loan offers.
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