This is a guest blog from Chris Grundy at Bitbond.
For many would-be entrepreneurs, eBay and other online market places have helped turn their dream, of giving up their day jobs and launching a thriving business, into a reality. There are many success stories too; there is no shortage of eBay millionaires who started out with nothing more than a small eBay store. In the US alone over 500,000 businesses sell on eBay and annual sales are around $10 billion.
But to get started you will need a certain amount of working capital. Even if you intend to continue your day job until your business is up and running, you will still need to buy stock and maybe set up a website, and there are likely other costs too.
If you aren’t able or don’t want to use your own savings, then you will need to finance your venture in some other way. Fortunately, there are several ways of doing so, the best of which are listed below. Please bear in mind that this shouldn’t be viewed as financial advice, this is just for your information.
Friends and family
If you can’t afford to finance your eBay business yourself, do you have any friends or family members who are willing to provide eBay financing for your start-up venture possibly in return for a share of your profits? This is generally the cheapest way, and the most flexible, but if things don’t work out as planned you run the risk of ruining your personal as well as professional life.
P2P loans are a very popular way of eBay financing. As they are independent of banks you can usually borrow much more cheaply than you could from a bank and much faster.
P2P lending works by matching people who need a loan for their business with lenders who want to invest. Essentially, instead of borrowing money from a financial institution, you are borrowing it from a group of individuals who are willing to take a greater risk in return for higher returns. Interest rates vary depending on a range of factors including your credit score.
There are many P2P lenders and some of the big ones include Funding Circle, Prosper and Zopa. More recently, a new kind of P2P lending platform, specialising in global small business loans, has emerged. Bitbond is one such platform.
Bitbond has several advantages over conventional platforms: as it uses bitcoin, which pushes fees for borrowers lower than on conventional P2P lending platforms; and cross border borrowing is facilitated. Interest rates are also reasonable and borrowers can be fully funded in as little as 5 days.
In fact, Bitbond is in many ways the ideal solution for financing eBay businesses:
- It is very easy to sign up for a loan; it takes less than 15 minutes to apply for your loan
- Interest rates start at just 7.7%; much cheaper than many of the other options
- The interest rate you pay is related to your credit risk which is assessed in accordance with the quality of your eBay business. Good feedback and an active store will ensure lower interest rates
- Selling on eBay can be highly competitive, so saving on the fees associated with your loan can help you stay competitive while maintaining reasonable margins
- Bitbond maintains a range of resources dedicated to helping its eBay sellers
- Get funded in as little as 5 days
- Applying for a loan does not affect your credit score
Kabbage provides eBay financing from $1,000 to $100,000. The loans are offered as credit lines, and you are only charged for the amount of cash that you use. To qualify for a Kabbage loan you need to be trading on eBay as your maximum credit line is related directly to your eBay and PayPal sales.
To apply for a Kabbage loan you will need to log into both your PayPal and eBay accounts and agree to give Kabbage access to them. After you do so, they will examine your sales history to assess your credit worthiness and determine the maximum credit line available to you.
The problem with Kabbage however is that they are expensive. While the APR they charge can vary depending on your merchant history, their published representative APR is 68%. Loans must be repaid in full over 10 months, though they can be repaid sooner without penalty as there are no early repayment fees.
It takes just minutes to apply and get approval and once you have a credit line you can take out as much as you want. Your advance can be deposited directly into your PayPal account. For businesses that require a quick loan to be repaid quickly, Kabbage can be useful, however it is generally too expensive for most businesses that need a longer term loan. Trading on eBay tends to me highly competitive and few businesses could absorb those interest rates while maintaining adequate margins.
PayPal Working Capital
PayPal is offering small business loans including eBay financing through its recently launched PayPal Working Capital scheme. This provides businesses with a cash advance directly into your PayPal account. Funds can be withdrawn into your bank account, or alternatively you can spend them 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.
While you don’t pay interest on the advance, there is a fixed fee. There is also a requirement to repay a minimum of 10% of the advance plus fixed fee every 90 days. The fees vary depending on the percentage of sales revenues you wish to use to repay the advance. You can choose to repay from 10% to 30% of your PayPal sales revenue and the corresponding fees range typically from around 12% to 2.5% of the advance accordingly. Fees also vary according to your PayPal sales history.
If you need the cash in a hurry, this could be an attractive option. It takes just a few minutes to complete the loan application and receive a decision, and if you are approved the cash will be available in your PayPal account within a minute. A further advantage is that your eligibility for an advance is assessed entirely on your PayPal history; there are no checks on your personal or business credit rating so your application will not be visible to the credit rating agencies.
The downside is you need to have already been trading and accepting PayPal payments to qualify for this loan, so it isn’t available for new businesses. PayPal working capital is only available in the US and UK at present.
Bill Me Later
If you intend to purchase items on eBay, then you might wish to consider Bill Me Later. This is a special PayPal service that will provide you with a credit line to fund your eBay purchases. It is easy to get approval; you simply need to prove your identity. Once you are approved you can use it each time you check out with PayPal.
Invoices are issued monthly and there is no annual fee. However, the interest rate is high; the APR is 19.99% with a minimum financing charge of $2.00 a month. There are no charges if the balance is paid in full each month. Fees for late payment are punitive; the first time you are late you will be charged $25 and then $35 for subsequent late payments.
The way in which your maximum credit limit is determined might be confusing. Once you open an account you receive a credit limit of at least $250, but this is adjusted as you make purchases. If you try to spend more than your existing credit limit, Bill Me Later views this as a request to increase your credit line and may or may not approve it in real time during checkout. That means you never really know what your maximum credit limit is.
Finally | The best eBay financing
These are just some suggestions to help you kick start your eBay venture, there are plenty of others you can also try if none of these appeal to you. Nowadays many lenders are happy to provide eBay financing, which is one of the reasons many entrepreneurs open eBay stores, and some go on to become eBay millionaires.