The advent of the COVID-19 pandemic last year did more than affect the health, lifestyles, and the very freedoms of a large swath of the population across the globe.
It also had a profound effect on the way business is done. For many months, and in some cases more than a year, a large number of companies operated solely by remote means, making the concept of ZOOM meetings–unheard of just 24 months ago–a household word.
The pandemic also damaged livelihoods and affected careers, as businesses that lost out on profits during the shutdown laid-off employees in large numbers.
With the combination of a disenfranchised workforce and an inclination for many people to favor doing business online and making purchases via the internet while bypassing brick-and-mortar establishments, launching an e-commerce business has become a much more popular option for many folks who’ve been forced into a career change. This has elevated the importance of knowing what small business loan options are out there.
One such online venture is an eBay business. Conducting sales online offers the advantage of being one’s own boss without having to deal with the overhead. If you’re interested in starting an eBay business, you’ll need first to understand how to go about the process, and also what kind of funding is available for such business needs.
There are more than 500,000 eBay sellers in the United States, and annual sales are around $10 billion.
There is no closing time with a business like this. The business day is 24/7 online, where anyone can go to a site and make a purchase any day at any time.
Start by deciding what type of product you will be selling. What service or product is a good fit for you, factoring in your knowledge, interest, and location, as well as the current popularity and potential long-term viability of its appeal to customers?
While the choice of options for what to sell is almost infinite, eBay does have a list of things that entrepreneurs are prohibited from marketing, or that have significant restrictions. Art, tickets to events, and gift cards are among the items you’re not permitted to sell on eBay.
It would make sense for anybody considering launching an online business to deal in merchandise or products they know something about. A person who is a collector or who has a particular hobby or an area of expertise would be better advised to go into business selling something related to those things rather than striking out in a direction so foreign to him that it would necessitate a crash course in educating himself about the topic.
It’s also vital to establish that there is some demand for the product one would be selling on eBay. No matter how much you might love a particular product, if it isn’t marketable to a wide audience that’s willing to buy, then the venture might be doomed to failure.
Also, figure out what a realistic price point is for the products you’ll be marketing online. If you establish a price that’s too high, nobody will buy from you. If you price your merchandise too low, you won’t make a profit from it.
According to Bplans, some popular items for online purchase in recent years have included electronics such as laptops, Bluetooth speakers, accessories for mobile phones and gaming consoles; collectibles like trading cards, coins, and stamps; and fashion items including sneakers, makeup, hair accessories, and smartwatch replacement bands.
If you are planning to list many items, consider the option of paying for your own eBay store. These eBay stores are available in five packages ranging from Starter to Enterprise. The latter package costs around $3,000 a month to maintain, so that’s probably best-suited for a more established online entrepreneur.
You’ll also need to get set up with the ability to accept payments by credit card.
Like any other startup, launching an eBay business will require working capital. Purchasing stock for your eBay business and setting up a website are actions that will incur costs well before you even have a chance to make your first sale.
Some new business owners do not have the savings to fund a startup without some assistance and will need to explore other financing options to get the business off the ground.
Some of these financing options include:
Friends and Family
Since friends and family are a known quantity and would for many would-be entrepreneurs represent a more trustworthy starting point for startup funding, it’s the first option many small business owners will seek out.
An informal request of one’s “warm market” might represent a more comforting place to start, but, of course, friends and family alone might not have the resources you’ll need to get things going.
Tapping into the combined resources and contributions of friends, customers, family, and possibly individual investors by using social media and online platforms set up for this specific purpose is called crowdfunding.
The process of crowdfunding entails collecting small amounts of capital from a large base of contributors, accessing a sizable potential pool of resources. Crowdfunding is open to anyone. The business owner who seeks to raise capital through crowdfunding is essentially turning over the process of an application to a large group of people, rather than depending on the decision of an individual lender. Crowdfunding sites generate revenue from a percentage of the funds raised.
The advantages of crowdfunding include its broad reach, the ability to present one’s business in a positive light to potential investors, the attention to one’s business derived from public relations and marketing on a crowdfunding platform, and efficiency. Crowdfunding helps a business to streamline its fundraising efforts with a single profile that is comprehensive and into which the entrepreneur can funnel all prospects and potential investors.
Peer-to-peer lenders diverge from traditional lending sources in that they work with individual or corporate investors who provide funding for business and consumer loans. Peer-to-peer personal loans are offered directly to individuals without the intermediation of a bank or traditional financial institution. Online lending platforms fund borrowers via institutional lending partners. Also referred to as marketplace lending, peer-to-peer (p2p) lending is an increasingly popular alternative to traditional lending. Borrowers and lenders can both benefit from this more direct lending system.
In p2p lending, one party lends money to a business, with the promise of receiving a sizable return for doing so. When a business seeks a p2p loan, it accesses a website, requests a loan, and then investors are permitted to fund the loan and also share in the interest payments.
Just as a conventional lending institution would do, a p2p platform will investigate the finances of the small business owner who is seeking a loan. Investors will want to know the borrower’s credit score, his history of paying bills on time, and his or her debt-to-income ratio before deciding whether the borrower’s financial statements are in good enough order to merit funding the loan request. Then the loan–which sits on the platform for two weeks (or less) awaiting investors–is assigned a score based on its level of risk. Investors in a p2p loan can offer to pay as little as $25 of the loan. One p2p investor could conceivably choose to bankroll an entire loan, as well. Every time a payment is made, the investor receives his/her interest payment and the principal payment back in his account.
The U.S. Small Business Administration (SBA) offers commercial financing backed by the SBA through its SBA 7(a) loan program. The most common type of SBA loan, an SBA 7(a) loan assists businesses in the purchase or refinances of owner-occupied commercial properties up to $5 million. This loan also gives the business owner a chance to borrow funds for working capital.
These loans are suited to assist businesses that are unable to secure credit anywhere else. With an SBA (7a) loan, the borrower can purchase land or buildings, build a new property, or renovate their existing property as long as the real estate will be occupied by the owner. Through an SBA (7a) loan, an entrepreneur can borrow up to $5 million through an SBA-affiliated lender. The maximum allowed interest rates for the program are based on the Wall Street Journal Prime Rate plus a margin of a few percentage points. Interest rates can be fixed, variable, or a combination of the two. Loan terms for 7(a) loans that are used for commercial real estate may be as long as 25 years for repayment. Each monthly payment would be the same until the loan is fully repaid.
Backed by the U.S. Small Business Administration, this type of financing can assist in the purchase or refinance of an owner-occupied commercial property. These 504 loans are actually a hybrid form of financing: One loan coming from a Certified Development Company (CDC) for up to 40 percent of the loan amount, and one loan from a bank for half the loan amount or greater. Low down payment requirements make CDC/SBA 504 loans ideal for growing companies that might not have more than 10 percent to use as a down payment.
A CDC/504 loan is for either 10 years or 20 years. Borrowers get a fixed rate rather than the prime lending rate. Applicants will be required to show the lender a business plan, exhibit proof that they are capable of managing a business, and present projected cash flow data–all to assure the lender that the loan is likely to be repaid without complications.
PayPal Working Capital
PayPal recently launched a program titled PayPal Working Capital, which can provide small business loans, including eBay financing.
PayPal Working Capital supplies companies with a cash advance directly into a PayPal account. From there you have the ability to withdraw funds directly into your bank account or to spend directly from your PayPal account. The advance is repaid out of your PayPal sales. If on any day you fail to make a sale through PayPal, you are not charged.
There is a fixed fee for PayPal Working Capital, as well as a requirement to repay a minimum of 10% of the advance plus a fixed fee every 90 days. However, you do not pay interest on the advance.
You can choose to repay from 10% to 30% of your PayPal sales revenue. The corresponding fees could range from 12% to 2.5% of the advance. A person’s previous PayPal history could also impact what the fees are for PayPal Working Capital.
A bridge loan is a short-term form of funding that can close a gap that exists between the capital a business owner requires right now and a longer-term answer to financing. Sometimes, a business owner has to land a bridge loan in order to continue operating on a day-to-day basis and pay the bills while awaiting greater long-term capital that has not arrived yet. According to the U.S. Chamber of Commerce, bridge loans can be critical to a business that is in a cash-flow lull when it has yet to get the longer-term funding it is awaiting to pay expenses.
A small business might consider a bridge loan to keep the company solvent and able to pay its bills during a time when cash on hand is scarce but invoices that are outstanding are on their way to being paid off.
The need for working capital could be the impetus to apply for a bridge loan. Working capital is the difference between the current assets a company has, including cash and accounts payable, and its current liabilities, which would include bills that need to be paid, salaries, and any debts. If a business has more present liabilities than current assets, the cash shortfall that could result might prompt a business owner to seek a bridge loan.
Small business loan approval percentages at big banks ($10 billion+ in assets) dipped to 13.2% in November 2020, a drop of more than 50% from a year earlier, which is an indication that eBay sellers and other entrepreneurs might need to seek more creative and less traditional means of financing their small business.
Financing a small startup is not the same as getting a loan to expand an existing company that is already established. If your eBay business shows promise and starts to grow, a business line of credit for inventory is another option.
When a lender provides pre-approved funding with a maximum credit limit, that is known as a business line of credit. If the borrower is approved for this line of credit, funds can be accessed whenever they are needed until the established credit limit has been reached.
Because the borrower is only paying interest on the amount that he or she withdraws, a business line of credit can be advantageous for business owners who are uncertain of the amount of funding they will actually require, or when they might need it.
The drawback to a business line of credit is that the loan will be at a rate that might be considerably higher than other types of loans. How costly that actually would be is heavily dependent on the volume of funds the entrepreneur ends up using.
If a business owner needs to establish a favorable credit history, a business line of credit could help them do that!