Thinking About A Loan to Grow Your Business?
A growing business needs access to funds to stay competitive and realize its full potential. Many eCommerce sellers make the bulk of their sales and profits during Q4, and the last thing you want is to miss the boat due to lack of working capital. As part of your planning, consider how you can accelerate your access to the cash you need to fully prepare for the season.
There are a number of ways to get the additional funds you need. The best option for you depends on your business, your financial situation, your goals and the relationship you have with financial providers.
Some eCommerce sellers opt for a business line of credit. Another option is to get a commercial loan. These are typically used to finance a one-time, larger expense, and come with a fixed or variable rate of interest, and a regular repayment schedule. These types of loans are often difficult for eCommerce sellers to secure and if they are approved, the process can take weeks.
Taking on a business loan is a big decision and you should look into the options available from different providers. Before deciding, it’s critical to do your due diligence and only go with a provider that has a solid reputation.
Key things to consider when evaluating a loan
There are some questions you should keep in mind, to help you choose the best solution for your business.
How Much Do You Need?
Before applying, it’s best to be realistic about how much money you actually need. So think about seasonal trends, new opportunities, and your business growth. If you ask for too little, you’ll be limiting your opportunities; if you ask for too much, you’ll be paying interest on financing you don’t really need.
How Long Will It Take to Apply and Get Funded?
Applying for a business loan can take a lot of time and effort – first to research the options and then to apply with all the required information and supporting documents. This can take longer than you may expect, so confirm you can receive the funds in time.
How Much Will It Cost in Total?
Key to any loan is how much it will cost you in total to pay it back, including all additional expenses.
You will typically see an APR (“Annual Percentage Rate”) reflecting the annual cost for borrowing averaged over the full term of the loan. It includes the interest charges and any other financing fees expressed as a percentage, which can be a bit confusing.
An alternative metric is the TPA (“Total Payback Amount”). This consists of the principal plus all associated costs in actual dollars. This helps you to decide whether the cost of the loan makes sense for your business.
Let’s look at an example:
- You receive a loan of $1,000 at 10 percent annual interest
- You pay it back monthly over three years
- You also pay $150 in financing fees
The APR is 19.9 percent.
Your TPA is $1,335.86 for $1,000 borrowed.
How Will I Repay the Loan?
Be clear about the amount and frequency of the repayments, as well as how easy it will be to manage. For example, can you set up a regular automated payment to avoid accidental late payments and associated fees? Check if there are penalties for making extra payments ahead of the schedule, and the option to skip a payment.
Are There Other Options? If you are not keen on borrowing funds, you might like to consider getting an advance on your own earnings faster so that you can purchase more inventory as needed. Payoneer offer this exact solution through our Capital Advance service. Our Capital Advance service provides you with an advance on your incoming marketplace payments with offers based on your store’s past performance. Let us provide you with the instant boost of working capital your business needs to grow.
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