Getting A Loan To Start Your e-Commerce Business: What You Need To Know
Over the last few years, widespread digital transformation across industries has given rise to e-commerce businesses, which can sell anything from tangible goods to digital products and services.
But it is the small and medium-sized enterprises (SMEs) that stand to gain the most from lower operating costs and wider customer reach, which were among the benefits of this growing model noted in a previous article entitled ‘Will e-Commerce One Day Dominate The World?’. Before business owners can fully maximize these opportunities, they need sufficient funding to cover everything from e-commerce ecosystems to marketing efforts.
Loans can be a way to augment financial capital, so here is everything you need to know if you’re considering getting a loan to kick-start your e-commerce business.
Why Take Out A Loan?
As more and more entrepreneurs and consumers are realizing the advantages of e-commerce, its business landscape is becoming increasingly competitive. A loan enables you to meet your capital needs for launching and innovating your brand, especially since Retail Customer Experience’s report on e-commerce trends reveals that rising costs and inventory pressures over the next twelve months may heavily cut into retailers’ profit margins.
Compared to other funding options like equity financing, where investors’ interests can largely influence your business decisions, a loan helps you stabilize your cash flow without taking away control of your business.
Which Types Of Loans Can You Get?
In terms of which type of loan product to get, your choice usually lies between a business or a personal loan.
Business loans can be used to fund most business-related expenses like payroll, supplies, machinery, and other working capital needs. For the most part, the business loan interest payments can also be deducted from your tax liabilities. Another notable advantage of acquiring a business loan is the sizable loan amount, as traditional bank loans can start at $25,000, while loans partially guaranteed by the U.S. Small Business Administration can range from $50,000 to $500,000.
However, with this large offering comes an extensive loan application process and tighter lending standards. Most banks and SBA-participating lenders would require you already to have strong finances with several years of business history, making it hard to qualify if it’s your first time dipping your feet into the industry.
Personal loans offer more flexibility in terms of purpose and requirements. Aside from direct operating costs and short-term needs, loans can also be spent on personal lifestyle changes that can indirectly affect how you run your business, for example, a home office renovation.
Sound Dollar outlines that personal loan eligibility mainly depends on a high credit score, adequate income, and a low debt-to-income ratio in order to secure the best rates and payment terms. Even if you’re not altogether low-risk in these areas though, you can still qualify for a personal loan by securing the debt with assets like your car.
When applying for loans, you’ll need to provide your social security number or tax identification number, your employer and income status, and additional documentation like your driver’s license and utility bills. It’s advisable to look into different lenders to find the terms and features best suited for your short-term or long-term needs.
Where Can You Invest Your Money?
Depending on the loan amount you acquire, you can invest your money in business essentials like your e-commerce website/platform, content marketing, and staff management.
Additionally, the U.S. Chamber of Commerce lists unavoidable expenses that can rack up and catch you off-guard if you don’t factor them into your budget. These include freelance/professional services like tax preparation, content creation, and technical support; payment processing fees; and cybersecurity measures since your e-commerce business will undeniably utilize technology for day-to-day operations. Cybersecurity also cannot be overlooked, considering data and security breaches no longer affect large firms but can also impact the finances and reputation of at least 58% of small businesses, including e-commerce.