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7 big mistakes esellers make when taking out a small business loan

Payoneer CommunityPayoneer Community
December 11, 2022

eSellers who find themselves held back from growing their business due to seasonal cash crunches may choose to take on a small business loan to help them out. This is not an unusual option to consider. After all, having funds available to keep you on track with your goals is a good thing, right? It could be. But before you take on additional debt, consider the following 7 mistakes that small business owners make when they move forward.

1. Not realizing that business loans are specifically tailored

Simply put, you cannot walk into a bank and say you need a loan for this and that. You have to be specific about what you will be using the funds for and you then need to find the matching loan type. For example, a working capital loan cannot be used to buy equipment and an equipment loan cannot be used to pay wages. So if you are thinking that you need funds to get you through a slow period, take advantage of a peak period, and expand your business at a desirable rate, there may not be a small business loan for you. If you choose loan that seems right for your needs but is not, you may find yourself in a difficult financial situation regardless of your funding.

2. Not considering other financing options

How long you have been in business, what you do, your revenues, and your goals, all inform your choice of financing options. For instance, banks generally prefer to fund established businesses with a solid revenue stream and a good credit rating. As an eSeller, you may not be there yet. Alternatives to traditional small business loans are available. Especially if you look at online options. But, while some of these options may be easier, quicker and shorter in term, they could come with a higher price tag. If you don’t do your research, the funding option you choose may not be right for your budget.

3. Not a good long-term solution

You cannot even out seasonal cash flow with a short-term loan. Once the money is gone, you will be back where you started the next time around. It may be better for you to choose a solution that gives you the ability to access money when needed, based on good financial planning. A business line of credit is a potential option. However, it can also come with risks.

4. Not reading the fine print

Loan agreements come with a lot of fine print. It’s tempting to let the lender explain the gist of each section of the document before signing rather than read the document through yourself. This could cost you, as loans often come with many fees and sometimes variable interest rates. It may be time consuming and possibly expensive, but you should review the agreement carefully with your lawyer to help you understand the legal jargon and renegotiate the terms, if necessary.

5. Not well-prepared to pay it back

Getting funds to support your business plans can be pretty exciting. So exciting that a pay-back plan could end up on the back burner. If you cannot present a traditional lending institution with plan for making consistent payments, you may not be approved. If you are able to obtain funds through an easier clearinghouse, you may find yourself worse off if you fall behind on your payments.

6. Taking a loan for the sake of it

Some business owners take loans just because interest rates are low and they can, which is a bad practice. You do not have to use the credit line for no reason. If there is no urgency to restock the inventory, do not apply for the loan. Wait for the profits to turn up and use them to purchase whatever you think is necessary.

Furthermore, if you want to expand the business, take a comprehensive look at the profit. Do not take the loan if the profit is enough to support the expansions. Instead, wait a couple of months to collect the profit and expand the business. Taking a loan might seem an easy and quick option but remember that you have to return it as well, and that too with interest. 

7. Taking a loan to settle a previous loan

Never take a loan to settle the previous amount that was lent to you. It will trap you in the vicious cycle of debt repayment, and you will never recover from it. If the business is not making enough to settle the previous loan, sell or liquify some assets. On the surface, it might seem that you are downsizing the business, but it is the best approach. But if the business keeps taking new loans to settle the interest and repayment of the previous lendings, it will eventually go bankrupt. And the assets that are leveraged as collateral would be seized as well.

The Best Financing Option

Capital Advance prevents business owners from making common mistakes by offering unorthodox funding. It does not consider a business’s credit score while providing it with the necessary cash advance. The service offers up to $750,000, or 140% of the account receivables. It is exactly what makes it different from traditional loans. The cash advance is not provided by correlating an asset but based on the performance of the business. You are not trapped in the vicious cycle of debt collection because it only offers so much that could be easily cleared by future payments.

Furthermore, unlike traditional banking loans, you do not have to wait months to get them approved. Upon requesting the funding you only need to get your payments through Payoneer and then we calculate your eligibility based on your payments history, it will instantly be deposited in the account. Owners that want to check the amount they are eligible for can calculate with the online calculator on the website.

Capital Advance offers three products; the basic difference between them is the funding amount and the collection period. Express, Grow, and Plus are the three plans which are spanned on one, three, and six months respectively. You must settle the lower plan to become eligible for the higher one. When all the plans are settled, the owners have to liberty to go back to either of the three plans and meet their working capital needs.

Furthermore, the terms and conditions of Capital Advance are quite friendly for all sorts of online businesses. It charges a fixed percentage of the total funding, and there are no other hidden charges. When the collection period begins, Payoneer automatically deducts the amount from the payment received.

Payoneer customer? View your Capital Advance offers now!

New to Payoneer? Learn more about Capital Advance

The content provided in this article including any information relating to pricing, fees, and other charges is accurate and valid only as of the date it was published. In addition, changes in applicable regulations, policies, market conditions, or other relevant factors may impact the accuracy of the mentioned pricing and fees and other associated details. Accordingly, it is further clarified that any information regarding pricing, fees and other charges is subject to changes, and it is your responsibility to ensure you are viewing the most up to date content applicable to you. Payoneer will provide the most up to date and accurate information relating to pricing and fees as part of the account registration process. Registered customers can view this information via their online account.

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