E-Business Loans
In 2019, 30 million Americans operate an online or a home-based business. It is a highly sought-after career path for many and a smart move for several reasons. Some advantages to owning or operating an online business are the low startup costs, almost non-existent overheads, can be run from anywhere and part-time, and no staff required unless you choose to. Thus as with many business sectors, some are more successful than others. The top and most popular online businesses in 2019 are shown to be flipping used textbooks, referral marketing, Etsy, e-commerce businesses, and peer-to-peer loan investors to name a few.
Quick-jump to the following sections:
- Bank Term Loans
- Bank Line of Credit
- Unsecured Line of Credit
- SBA Loans
- Web-Based Alternative Loans
- Accounts Receivable Financing
- Factoring
- Web-Based Cash Advance
One of the most straightforward online business that is popular has been selling used textbooks on Amazon. There are a couple of different approaches people are taking, but the best method is buying used books on Amazon and then trading them into Amazon (via the Amazon trade-in program) and collecting the difference. It is so common given the fact that sellers list used textbooks for low prices on Amazon all the time, not realizing they could trade that item into Amazon for more money. A typical example where a seller could turn a profit would be to find a science book that has a used price for $50 and an Amazon trade-in price for $75—meaning you could buy it and trade it right back in for about a $25 profit. Sellers can further search for deals manually to speed up the process significantly. Another trending online business is great for artist and people wanting to sell used items or new. The difference from Amazon is that the pieces are mostly handcrafted, abstract, and are not mass-produced items. The things that tend to sell the most are personalized items such as mugs, pillows, and wedding favors. Additionally, handmade bags, stickers and vinyl transfers, handmade jewelry and charms, and other fabric items sell very well too.
E-commerce businesses are surprisingly back on the rise even with the dotcom crash of 2001. So new e-commerce companies are far removed from these days and are now passed the days when businesses had to worry about paying web developers vast amounts of money to build their e-commerce site. Moreover, modern e-commerce platforms like Shopify provide companies with a more relaxed and more cost-effective way to set up an online store. Hence, a particularly thriving e-commerce market right now is selling monthly subscription boxes. The most famous example would be the business model done by the Dollar Shave Club. The owners started out in 2012 selling affordable men’s grooming boxes each month. By 2015, they were acquired by UniLever for US$1 billion. Overall, Shopify has become a common option in the online store industry as it offers a stable e-commerce platform, with secure payment options.
Becoming an indie publisher is also a rapidly growing online business in 2018. With traditional publishing, they are known for turning down aspiring authors left and right which they could do since that was the only option available to authors. However, Amazon completely disrupted that industry back in 2007 when they launched the first Kindle, and with that, a legitimate self-publishing industry was born. Now individuals from all walks of life with an idea for a book can become an independent author. Today, there are more than 3.4 million self-published indie books on the KDP (Kindle Direct Publishing) platform. Furthermore, the most popular books on Amazon are non-fiction; however, the real money is in publishing fiction. The indie publishing industry has hundreds of success stories of authors earning tens of thousands of dollars per month. For people inclined to write, this may be a possible career—one more assessable than ever before.
Another online business trend has been to invest in peer-to-peer loans. The once model of banks having a monopoly on lending and currency has finally been turned on its head for several hundred years now. Then in 2005, the first Peer-to-Peer (P2P) loans took place. Their model directly matches lenders with borrowers, usually at very competitive interest rates. Meaning, even if someone has bad credit, there is still a good chance they may qualify for a P2P loan instead. There may be more risk for the lender in a P2P loan, but the dividends are worth it. So when it comes down to it, P2P loans are similar to crowdfunding, the difference is that P2P lenders “invest” in borrowers instead of investing in business start-ups. Thus what takes place directly with this type of business is lending money to people who can’t or won’t borrow it from regular banks, and the interest charged on that loan generates their profit. Ultimately, online businesses are an excellent way for businessmen and women to make an income.
Types of Web-based Business Loans
Web-based businesses have different needs from brick-and-mortar businesses — particularly when it comes to marketing. Web-based businesses can’t simply rely on foot traffic to lead to business sales, therefore having a strong marketing strategy is very important. But marketing can be very expensive, and sometimes a web-based business may seek outside funding to help with that and other expenses. Below we will take a look at the most common loans for web-based companies.
Bank Term Loans
Conventional banks (large banks, small banks, community lenders and credit unions) provide the most affordable financing products for web-based businesses. There aren’t any small business lenders that offer rates as low as conventional bank term loans, nor are there any that offer longer term lengths. Banks are able to provide such low rates because they take very little risk when offering business loans. They only provide loans to web-based businesses with the best credit and profitability.
| Rates | 5-15% |
|---|---|
| Terms | 1-25 years |
| Funding Amounts | $50,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Bank Line of Credit
A bank line of credit is a type of revolving credit facility which allows a web-based business to access capital whenever they need it from preapproved funds. While the business may be approved for a larger amount than is needed at any given time, the web-based business can draw only what it needs, and only pay interest on the drawn amount – not the overall facility size.
| Rates | 5-15% |
|---|---|
| Terms | 1-2 years |
| Funding Amounts | $10,000-$5,000,000 |
| Collateral | A/R Required |
| Fees | Medium costs |
Unsecured Line of Credit
An unsecured line of credit can come in two different forms: access to capital that can be drawn and deposited directly into the web-based business’s bank account, or through the use of low-interest credits cards (usually 0% APR for the first year). Being that an unsecured business loan for web-based businesses are not secured by the business’s assets, a borrower must have exceptional credit to get approved.
| Rates | 0% for 12 months |
|---|---|
| Terms | 1-2 years |
| Funding Amounts | $10,000-$500,000 |
| Collateral | Not be Required |
| Fees | Medium costs |
SBA Loans
This form of conventional financing allows growing web-based businesses with good credit and profitability to get bank-rate financing if they’ve been declined by traditional lending sources. Through the use of a “SBA Enhancement” the U.S. Small Business Administration encourages banks to provide financing to small businesses they normally wouldn’t by offering to cover the great majority of the bank’s losses if the web-based business fails to fully-repay their SBA loan.
| Rates | 5-8% |
|---|---|
| Terms | 3-25 years |
| Funding Amounts | $50,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Web Based Alternative Loans
Not every web-based business can get approved for conventional financing. That doesn’t mean that there aren’t affordable alternative options for a web-based business to fund operations and inventory. Mid prime alternative web-based loans are a perfect financing product for companies seeking rates lower than high-interest cash advances, as well as longer terms that allow the business to repay the loan debt comfortably.
| Rates | 8-25% |
|---|---|
| Terms | 1-5 years |
| Funding Amounts | $10,000-$500,000 |
| Collateral | Not required |
| Fees | Medium costs |
Accounts Receivable Financing
Accounts receivable financing (sometimes referred to as A/R financing) involves using a web-based business’s unpaid invoices to provide the company with a line of credit. Unlike factoring, the unpaid invoices aren’t sold, but instead collateralized and the line of credit is adjusted periodically to reflect the unpaid invoices.
| Rates | 0.5-2.5% |
|---|---|
| Terms | 1-3 years |
| Funding Amounts | $250,000-$10,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Factoring
Factoring is very similar to A/R financing in that they both use unpaid invoices as the basis for financing. But whereas accounts receivable financing simply uses the unpaid invoices as collateral to provide a line of credit, factoring involves the outright sale of the unpaid invoices to a factoring company (at a discount to the factor).
| Rates | 0.5-2.5% |
|---|---|
| Terms | 1-10 years |
| Funding Amounts | $10,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Cash Advance
A cash advance is much different than all the loan options listed above in structure. A web-based business cash advance isn’t a loan at all, but the sale of future revenue to obtain immediate financing. So rather than wait days, weeks and months for potential business revenue to come in, a merchant cash advance allows you to sell projected income to get funding immediately.
| Factor rates | 1.10 – 1.50 |
|---|---|
| Terms | 3-24 months |
| Funding Amounts | $5,000-$2,000,000 |
| Collateral | Not required |
| Fees | Low to High costs |
Summary
There are plenty of funding options for growing web-based businesses. Regardless of need, there are conventional and alternative options available to help with a variety of uses including inventory, marketing, payroll, hiring employees, paying bills and general working capital. The key is getting the right type of financing to help your growing business. If you have a web-based business and seeking financing, please reach-out to one of our specialists and we’ll help you get the best financing product available.
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