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.

Capital Advance – an excellent alternative to traditional loans

Capital Advance by Payoneer is an excellent alternative to traditional loans. It neither requires businesses to leverage collateral nor takes the credit score into account. Furthermore, unlike a business line of credit, You only have to receive payments from your marketplace to your  Payoneer account to request the required funds. 

The funds offered by Capital Advance are based on the anticipation of the account receivables. You can get up to $750,000 or 140% of the account receivables based on the package that you pick. There are three products to choose from, which have different collection terms and conditions. These include Express, which is a one-month plan; Grow, which is spanned across three months; and Plus, which lasts for six months.

Once you settle one offer, you can receive a longer one and choose between previous terms. The different plans can be selected based on the requirements of businesses. For example, Express can be used to restock the inventory for one month, and plus can be used to expand the business. 

Furthermore, the funding can be provided quickly, and there is zero paperwork for the entire process. You can find out the amount you are eligible for via an online calculator available on the Payoneer website.

Unlike traditional loans, the terms and conditions are very simple. It charges a fixed percentage of the funding amount; besides that, there are no other charges. The collection process is also hassle-free, as Payoneer will automatically deduct a portion of receivables once the repayment terms begin.

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FAQs

Should I get a loan to grow my business?

Loans are helpful to grow the business, but several factors must be considered. You need to be familiar with the terms and conditions and understand whether they are suitable for the businesses. Getting a loan that is not appropriate for the business type would cause more harm than good. 

How can you use a loan to improve your business?

Manufacturing/purchasing, logistics, and marketing are the three important aspects of the business. You must identify the areas where the business lacks and use the loan to invest in that. For example, if the business is struggling because of brand unawareness, the loan can be used in marketing. But if the business fails to meet the demand, new equipment can be purchased to make manufacturing more efficient.

What are the pros and cons of a business loan?

Getting a loan can help expand the business and help with problems related to working capital. But it opens the businesses to new risks. If the expansion does not work, there would be little profit to pay the interest, which can result in default.