Find out all about the different e-seller loan options that can be used to meet the needs of your business
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An e-seller loan can cover a wide range of expenses related to running an ecommerce business. These include:
The best opportunities for purchasing inventory - such as when your supplier is offering a special discount - can sometimes arise out of the blue. Reacting to these changes swiftly requires financial flexibility, and here’s where a loan can come in handy to help you tap on these opportunities.
Growth & expansions
You may have started out with a handful of products, but you’ve arrived at the stage where there’s consumer demand for new products. Yet, a product line expansion can prove costly - you’ll need to invest in market research, as well as other additional resources needed to promote the product. Your operating cash flow may not always be sufficient to fund your expansion efforts, and here’s where a loan can come in handy to help cover these costs.
Overcoming seasonal effects
Ecommerce businesses across industries and products are affected by seasonality. In an eIQ article, ecommerce service provider aCommerce highlighted peak periods across the year for e-retailers in Southeast Asia: the year end holidays, where “nearly 40 percent of online sales generated in the last three months of the year”, as well as online shopping festivals like Alibaba’s Singles Day.
Once you’ve worked out the peak and lull periods for your business, you’ll be in a better position to implement measures to help you tide over fluctuations in your cash flow and revenue. For example, if the end-of-year festivities are an important peak period for your business, you’ll need ensure that your finances are well sorted out to fund your manpower, marketing and logistics efforts - which could start out as early as August or September.
Building a strong digital presence
In the age of digitisation, having a comprehensive online marketing strategy is key. Content marketing, retargeting campaigns, collaborations with influencers, social media marketing and email outreach are examples of strategies typically used by ecommerce businesses.
Having a strong online presence is more than just a way for ecommerce businesses to sell their products - it’s also a channel for brand discovery, consumer interaction, analytics and feedback.
Mr Lee Yee Fung, group director of the lifestyle business group at International Enterprise (IE) Singapore elaborates: “This knowledge can then enable retailers to create the right experience for the consumers by balancing physical and online strategies, to differentiate them from other retailers in this competitive space.“
As its name suggests, unsecured loans aren’t secured by collateral. Borrowers don’t have to put up assets on the line for financing; instead, these loans are approved based on factors such as a borrower’s business credit score and strength of cash flow.
Line of credit
Rather than receiving a lump sum upfront (as is the case with a term loan), a line of credit enables you to draw against a pre-approved amount as and when you need to. Interest is paid only only the funds that you draw out, and the amount repaid is available to be drawn again. From funding unexpected expenses, to improving cash flow and paying off inventory costs, a line of credit is a flexible financing tool that can be used for a variety of short term business needs.
Merchant cash advance
With a merchant cash advance (MCA), a lender provides financing, and you’ll repay the advance, along with a fee by letting the lender obtain a portion of your daily credit card sales.
One of the biggest advantages of MCAs is the flexibility that it offers. It can be used for a wide range of business needs, such as inventory purchases, unexpected payments and marketing expenses. And as payments are based on your daily credit card receipts, you won’t be left in a bind during lull periods as you’ll be paying off a smaller sum.
To maximise your chances of getting your loan approved, here’s a roundup of tips and action steps that you can implement:
Outline your repayment strategy
To better your chances of getting your loan approved, you’ll need to demonstrate that you’re able to make your payments in a timely, consistent manner throughout the duration of your loan.
One way to do so is to put together a document that outlines your repayment strategy. The document should include your revenue forecast and cash flow projections for the next one to three years of your operation; this will be an indicator that you’ll have sufficient cash on hand to make your repayment.
Additionally, you may include alternative options that will serve as a back-up plan in the worst-case scenario where you’re unable to make your loan payments.
Adopt a strategic approach
In looking ahead to identify the short term and long term needs of your business, you’ll be in a better position to implement strategies that’ll ensure that you have sufficient funds throughout the year.
Start off by reviewing your business plan for the year ahead. Your objective here is to assess your needs over the next six months, and outline strategies that’ll enable you to achieve your goals.
Next, you’ll need to zoom in on the details, and work through questions like: “What’s my loan purpose? How will getting a loan help my venture?” This will give you a clear idea of your capital needs, and help you make informed decisions around factors like the loan amount that you should take out, the type of financing option that’ll best meet your needs and the costs of borrowing that you’ll be comfortable with.
Lastly, make it a habit to review your credit profiles on a monthly basis. In doing so, you’ll have a clear understanding of the strengths and weakness of your profile, and can take regular and consistent steps towards making improvements.
Don’t underestimate the importance of this seemingly simple step, as it can make all the difference in getting your loan approved. Levi King, co-founder and CEO of financial services site Nav states that “businesses that regularly monitor their credit were 41 percent more likely to be approved when applying for a small business loan“.
Ecommerce businesses often find it a challenge obtaining financing from traditional banks and lenders. These businesses tend to have seasonal sales patterns, and banks consider the inconsistency in income as a disadvantage. Moreover, traditional lenders often require borrowers to have a stellar credit history and a two or three year track record - conditions that up-and-coming ventures are unable to fulfil.
With online lending platforms like Aspire, loan application processes are convenient, streamlined and speedy - submitting an application takes a matter of minutes, and you’ll be notified of your loan approval status in just 24 hours.