While the finances of eSellers may be less complicated than their brick and mortar counterparts, they are still prone to issues that can result from ineffective cash flow. Finding it difficult to take advantage of peak demand periods or expanding when the time is right, may result in eSellers opting to pursue a small business loan. However, that may be a step in the wrong direction. Here are four points to consider before moving forward.
- How much will it actually cost you?
Loans are complicated. And, in the end, the payback amount can far exceed the principal. Costs associated with small business loans include application fees (usually covers credit checks and appraisals), origination fees (usually a percentage of the principal which covers basic upfront administrative costs), underwriting fees (pays for lender’s time spent writing the loan agreement), and interest (this rate is based on many factors, including how risky lenders perceive a particular loan to be). Once a business has attained a loan, further costs may include late payments fees, check processing fees and a prepayment penalty.
- How much time will it take?
Determining your total payback amount by considering all the above factors together (by looking at APR) and separately (by considering one time vs. recurring costs) is time consuming. And once you’ve compared lenders, you then have to get the loan. Some applications will take longer (through a bank) than others (online). However, all will require the provision of information and supporting documents. And some will require appraisals, business plans, collateral, and/or a minimum of one year in business.
- How will you pay it back?
This may seem obvious. The lender tells you what you owe each month and you pay it. But will you have the funds? Taking on debt, without a clear-cut plan for using those funds appropriately and paying them back accordingly is risky business. And most lenders will require you to show how you are prepared to make consistent payments before approval.
- Is it really the best choice?
Even if you have the payment, because you don’t need all the funds right away, you have added to your administrative responsibilities. When all you need is working capital in hand to quickly take advantage of a market trend, stock up for a peak demand period, or grow your business, a loan may not be the most logical option. Do you really want to take the time, open your books and pay the fees just because of occasional cash crunches?
The Best Financing Option
By optimizing their cash flow, eSellers can avoid cash crunches without taking on the burden or risk associated with small business loans. To learn why a working capital solution is the best business financing option for eSellers, check out Payoneer Capital Advance.
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