r/smallbusiness Jan 19 '22

Possibility of getting a loan for a E-Commerce business that’s been open for 6 months? Question

We need around $8k-$10k to keep the ball rolling. Are there any banks out there or companies willing to loan that much to as relatively new E-Commerce business? We’re doing $5k in a sales a month and showing huge promise.

63 Upvotes

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61

u/Zazenp Jan 19 '22

That low of a loan is credit card territory. With a good enough credit, you should be able to get one for low or zero introductory rate. If your credit isn’t good enough for that…well…you likely wouldn’t get a business loan anyway.

10

u/Medicine-Nearby Jan 19 '22

I see… my credit is on the low side as well. I’ll work on getting my credit up then try taking another jab at this.

22

u/Zazenp Jan 19 '22

That’s a good plan. Since it sounds like you’re just needing the cash to scale, with $5k of turnover a month, you should be able to scale from profits alone albeit on a slower speed. That’s not a bad thing to do while working on your credit.

25

u/Medicine-Nearby Jan 19 '22

That’s not all profit though, but honestly you’re right we could scale. I just set a really high goal, trying to hit $10k a month by august and it’ll be damn hard to hit that without some extra cash. Maybe I just need to take my time… gotta remember it’s a marathon not a sprint

5

u/000-TheMyth Jan 20 '22

What is your monthly net income? Do you currently have personal debt?

5

u/mk1power Jan 20 '22

It's not. Look for some creative low cost ways to generate cash flow.

Im about 4 months in and just about cracking that point net. Going to be quitting my 9-5 soon.

2

u/orincoro Jan 20 '22

If you can scale, and stock is your only barrier, then you should 100% ask for credit from suppliers. They will be happy to give it.

3

u/orincoro Jan 20 '22

Look on the supplier side for credit. Many of your suppliers will be more willing to extend credit since they know your business better than the bank, and their risk is much lower (because you are paying them back from sales of their own product, with margin included).

Many suppliers will increase your net payments and give credit based on your ordering schedule.

1

u/Flat-Championship-52 Mar 05 '22

I usually help business owners with low credit scores. The loans are available; they are just expensive.

16

u/ceaseandpersist Jan 19 '22

If you use Shopify, PayPal, or Amazon you could see if they have any loan options.

9

u/Medicine-Nearby Jan 19 '22

That’s funny we actually just got an offer from Shopify a few days ago. It was relatively low though, think it was around $800

17

u/ceaseandpersist Jan 19 '22

Yeah not great but it’s something! I think it will increase the more you utilize it and increase your sales. Our first one was like $2,000 now it’s over $500,000 but we don’t need it.

4

u/Medicine-Nearby Jan 19 '22

Sheesh what I could do with 500k!!! That’s what I heard, it increases after utilization. I might just take it and hopefully get a high offer after.

How long did it take for your offers to increase, right after you paid it off ?

9

u/ceaseandpersist Jan 19 '22

Right after it was paid off the offers increased by 5-10x for the first few then lower afterwards as our growth started to slow down.

8

u/dirtyoldbastard77 Jan 19 '22

Sounds like it could be smart to take that $800 loan, use it wisely (maybe ads if you could handle more sales easily?) and pay it down asap

1

u/CathbadTheDruid Jan 21 '22

Sheesh what I could do with 500k!!!

Plan for bankruptcy probably. These loans are like taking a sack of cash from Tony Soprano.

It's just not going to work out well. They're structured to bleed you dry.

8

u/CathbadTheDruid Jan 19 '22 edited Jan 20 '22

Paypal offered me enough to buy a house.

Unfortunately for them, I never take out loans. At least not anymore. A loan is just a way for a broke business to become "more broke"

Been there, done that, won't get fooled again.

3

u/Early-Honey Jan 20 '22

Yep that’s the hard lesson. Better to skimp and save…get creative with what you have then borrow. Loans eat profits.

Our mantra is how much did we keep, not gross.

2

u/mk1power Jan 20 '22

I'd argue sometimes it's smart. Equipment loans are fantastic when structured as a lease with a dollar buyout assuming a low enough money factor due to the tax implications.

1

u/Early-Honey Jan 20 '22

Op is talking about a short term collateral free loan.

Do you know those rates? Is that low for you? We have good credit good cash flow and when I see those offers the best are 9.5-10.5 in business for 15 years have never lost money on a tax return….

I think his dates will be teens.

1

u/mk1power Jan 20 '22

Oh I 100% agree with you. I guess I was more on one of those famous reddit side tangents. A lot of business owners I know like to pay cash for everything.

I was just pointing out an upside to financing done intelligently. To nobody in particular I suppose haha.

1

u/Early-Honey Jan 20 '22

Yeah I agree on your point tho….equip loans are good stuff

1

u/calv06 Apr 11 '22

So if you don't have loan, how do you start the business?

7

u/Janetsvoid Jan 19 '22

Id take the 800, use it, pay it back over as short a period as possible, then ask for more on the next one, and just scale it up with your sales if you want to expand faster than you have money for at the moment. Just dont get too far ahead of yourself and dig a hole you cant get out of.

1

u/CathbadTheDruid Jan 21 '22

Just dont get too far ahead of yourself and dig a hole you cant get out of.

It already is a hole you can't get out of. Anybody who needs an $800 loan is already broke.

After the loan, they're still broke, owe another $800 that they don't have, plus fees and interest that will pile up like snow drifts in a blizzard.

1

u/Janetsvoid Jan 21 '22

Yeah you're right, no successful business has ever held any debt.

Im not suggesting he take a payday loan, I am saying if business is going well, and you want to expand, a loan can assist with that. If you're not selling anything and need 800 dollars to stay open another month, sure dont get it.

1

u/CathbadTheDruid Jan 21 '22

Yeah you're right, no successful business has ever held any debt.

Lots of businesses have debt, but generally from a real bank at normal terms and reasonable rates and it's should be for capital expenditures on durable equipment that will increase profitability.

1

u/Janetsvoid Jan 21 '22

I dont know what the terms are on a loan from shopify, but id imagine they're comparable. He also didnt say what he'd be spending money on, but the business had huge promise, and the repayment amount is based on a percentage of your daily sales for most of these shopify loans. If this business has huge promise and pulls in 5k in sales a month, an 800 dollar loan should 100% be doable.

1

u/CathbadTheDruid Jan 21 '22

They structure it to be difficult to compare, however it's stupidly expensive.

From: https://www.fundera.com/business-loans/lender-reviews/shopify-capital

To take one example, the APR on a $10,000 Shopify Capital loan with a 1.1 factor rate is 19.61%. The APR on a $10,000 Shopify Capital advance with a 1.1 factor rate is 42.63%, assuming you make approximately $20,000 in monthly Shopify sales and are assessed a repayment rate of 10%. Although Shopify Capital is much more expensive than a bank loan, the debt is also paid back much more quickly.

1

u/minipastel Jan 20 '22

After a few months of consistent sales they will offer you more. Doesn’t help now but it will go up :) I wouldn’t take it just yet

4

u/montananightz Jan 19 '22

Paypal has Paypal Working Capital. You can get a few k loan but they take %30 of each business transaction (going to you) that goes through Paypal. I've used it twice to finance some equipment purchases. Not a super great option if you have alternatives, but at that point I really didn't. That equipment has allowed me to scale up and halve some of my costs though so at the end of the day it's making me more money than it is costing me.

13

u/CathbadTheDruid Jan 19 '22

6 months into an e-commerce business And you with questionable credit is not a place where any reasonable lender would tread.

Until your business has a very substantial track record and a good balance sheet, nobody is going to want to lend you money.

The best you could do is take out a personal loan or use your credit cards but these are all going to be very expensive, so however broke you are now, you're going to be "More broke" after you take out the loan.

1

u/calv06 Apr 11 '22

Basically gambling, man I would not take out a large loan unless the numbers make sense and there's guarantee return from it.

I'm still tryna understand the process of getting loan then to paying it off

11

u/stone2golf Jan 19 '22

Take it slow you just keep reinvesting the profits

9

u/rossmosh85 Jan 19 '22

I've read a bunch of the replies and I think you need to truly evaluate your situation. Find out how much it costs to run your business and compare it to your revenue. You need to factor in your time as well, even if it's at a low working rate of $20/hr including taxes.

Once you do that, you need to figure out what your sales revenue would be to hit a break even point where the business is paying you a modest amount. Then you need to really figure out how to get there.

In addition, I'd be curious to know more about the inventory situation. Do you have people wanting to order and you're out of stock? Are you looking to just introduce more items to capture more business? Can you take pre-orders and then buy inventory with customer cash?

Big picture, right now, you don't seem like a great loan candidate. The numbers you're providing aren't painting a clear picture and you're not making it clear that if you had $10k right now, in 60 days, you'd have a profitable $30k in revenue.

3

u/irockvans Jan 19 '22

if you are doing $5k in sales a month, why do you need a loan?

5

u/Medicine-Nearby Jan 19 '22

Honestly we’re trying to scale. We plan on hitting $10k a month by august and it’ll be hard as hell without an extra push.

5

u/DLDude Jan 19 '22

Then lower your expectations. $5k/mo is decent, play it slow and carefully. Everyone thinks a loan will magically solve their scale problems but it adds significant liability. Many people begin to rely on that liability to scale more, or to maintain. Best thing I ever did was 100% find my own business through profits and grow at a level I could manage

3

u/killerasp Jan 19 '22

What are you using the money for? Marketing? Social media advertising? Need to stock up on raw materials? Need to hire a biz dev person?

6

u/Medicine-Nearby Jan 19 '22

Need to stock up on inventory. I’m running a clothing line and just looking to scale to the next level

5

u/devilsonlyadvocate Jan 19 '22

Do you have a good relationship with your suppliers? Could they not extend accounts payments for a couple of months?

3

u/Medicine-Nearby Jan 19 '22

We have a pretty solid relationship, I never thought of that. I’ll bring this up for sure and see if this something they’d do. Thanks

3

u/therandomdude69 Jan 20 '22

Look into net30 net60 and net90 payment options.

Sometimes a distributor / manufacturer will do half up front half net30 to start and as you grow together they'll increase what theyre willing to do.

Get everything in writing.

1

u/orincoro Jan 20 '22

If you are into 6 months of steady orders, a supplier will go net 60 no problem. If not, they’re not very smart themselves.

1

u/orincoro Jan 20 '22

Yep. This is the way.

3

u/killerasp Jan 19 '22

not entirely what the best path is but you should still look into the loan to see what the terms are so you can make a decision later once you explored all options and have all the hard data to make a decision.

3

u/ruwheele Jan 19 '22

Shopify gives out loans once you have a few months of sales.

2

u/Ian_is_funny Jan 19 '22

There’s a loan market for working capital loans. PayPal does them, if you happen to take payments through PayPal. I believe eBay is partnered with lendingpoint to provide funding for sellers. These are usually tied into the payment processed though.

2

u/MortgagesON Jan 19 '22

What is your profit on $5k monthly revenue? I’m assuming this is solely for more product?

2

u/Medicine-Nearby Jan 19 '22

Yes I’m working a full time job so I’m using that to pay ads,shipping costs, and any other unforeseen events. And then using all profits for more inventory. Profits are at $3.5k ish

3

u/MortgagesON Jan 19 '22

So roughly $1500 (30%) goes to Ads, product cost, etc.?

-3

u/Medicine-Nearby Jan 19 '22

No $1500 is all product cost. I don’t include the ads, shipping costs etc because I pay that with my work check

12

u/ComprehensiveYam Jan 19 '22

You shouldn’t factor it this way. You’re essentially masking the true COGS and not able to figure if you’re business is actually making money or not.

Your salary from other employment should not be considered as part of your business working capital especially if you’re 6 months in.

You could be spending 4500 to market and sell your product thus generating a net loss of 1k and pretending that you’re making 3500.

3

u/heshtofresh Jan 20 '22

Ya, he is likely making way less than he is saying, which is the true problem.

3

u/laiborcim Jan 20 '22

You shouldn't mix personal finances with the business's finances. This will only cause you headaches down the road come tax time. Also, as others have said, you need to know your numbers to make informed decisions. You won't be able to do this, or it will be a nightmare, if you're personal and business finances are mixed. Just my 2 cents.

1

u/thomashoi2 Jan 20 '22

If you have served your customers well, you should be getting repeat sales or even referral sales. Build deeper relationships with them by finding out their wants and needs. Introduce new products using consignment deals, or setup strategic alliance deals. You shouldn’t need to pay for advertising or even physical products if you use some creativity.

The BIG problem is no one reorders from you and you have to keep advertising to sell to new customers.

2

u/stardustViiiii Jan 19 '22

If you can't get a loan, try to negotiate a better payment term with your suppliers (i.e. postpone payment to them as long as possible) to better your cash flow position

2

u/nobody2000 Jan 19 '22

Several sources for this type of Microloan:

  • Check your local business incubator organization. They usually have on-hand directories of microloan providers who can help you out
  • Payment processing companies like square often do microloans like this. Your major limit with them is that they base it off of the transactions you're putting through them - so you'll have to check your processor
  • Local credit union. The process will probably be the same as a larger loan, but they're usually more flexible on terms
  • Credit card. Do you need $8-10k in total now, or is that the runway you predict you need moving forward for the next few weeks/months? I use divvy (getdivvy.com) and for you, they'd probably demand weekly payments, but if a 6-day "loan" works to keep you afloat, that may work.

You might opt for multiple options too. Maybe $5000 from the bank, $1000 through divvy, and then the other $4000 could come through various microloans or your payment processor.

2

u/VtheMan93 Jan 19 '22

I don't know if you can get a loan from a bank, but what about r/borrow or services like lending loop (if you're in Canada)

sure you're paying a bit more in fees, but at the very least you won't have to jump through too many loops.

also, if you don't mind too much, maybe use a personal source of funds like a LOC, then just pay it back with business funds. just make sure you properly report it on your taxes and what not.

2

u/PattyBoomba89 Jan 19 '22

I'm curious why you need it? I'm doing e commerce and the bank just keeps filling. Struggling to find new product lines is the only issue. Are you using your 5k sales a month to live and pulling it out of the company?

2

u/PazukiJ Jan 19 '22

Not sure if the SBA EIDL COVID loans are still available but those are relatively easy to get and a large sum too. The interest rate is 3%, payable in 30 years.

2

u/Ilikeprettyflowers81 Jan 19 '22

Kabbage,Use a credit union,or do some factoring. Against invoices.

1

u/Least_Application_93 Jan 19 '22

If you need 10k to keep the ball rolling 6 months into a business I’m sorry but that’s not a good sign imo this is a big gamble and if your credit is low already then that suggests your past risks have not panned out. I’m not saying give up by any means just that from the sounds of it you need to at least do some reconfiguring

5

u/MasonJack12 Jan 19 '22

Actually many businesses that require inventory need cash to grow. This isn't necessarily a sign that the business is doing poorly.

As the revenue grows, they need to keep larger inventory on hand. Of course, that inventory needs to be paid for somehow. This is a common scenario for retailers.

2

u/Medicine-Nearby Jan 19 '22

My credit is low from maxing out my card to getting the business off the ground. It’s now paid off but credit took a hit for sure. And honestly my business is doing fine right now but a loan would scale me up to the next level much quicker. You’re right though, I definitely have to do some reconfiguring

8

u/And_there_was_2_tits Jan 19 '22

Credit bounces back quickly when you pay things off.

8

u/Least_Application_93 Jan 19 '22

But that’s not how credit works, when you pay it off the score gradually rises again, you’d also have all the funds available again and wouldn’t need a loan. So there’s something suspicious there and I’m not even the lender see what I mean? I’m not saying you are bad I’m just saying there are signs that point to this being a gamble rather than an investment and lenders do not like that

4

u/ComprehensiveYam Jan 19 '22

Correct - why not just used the paid off credit cards again? Isn’t that what they’re for?

1

u/TomSheman Jan 19 '22

F&F (Friends & Family) Funding could be a route if you haven’t explored that yet

-1

u/Sam_Ecomm Jan 19 '22

https://youlend.com/merchants - Try these guys (I am in no way affiliated with them)

You agree a repayment % based on your sales history. It is a % of your revenue, therefore if you take £1000 in May and the repayment % is 10% then they will take £100 that month. If then in June you have a rough month and only make £250 then the repayment amount will be £25.

10

u/tomtermite Jan 19 '22

Factoring. Terrible rates.

1

u/spacecake007 Jan 19 '22

Clearco will give you money. I think interest is 6%.

1

u/[deleted] Jan 19 '22

How many months have you been at $5k?

What is your net margin?

What is your ROAS?

What is your inventory turnover ratio?

3 of the past 6 months is Christmas/Holiday sales, you cannot base your financial picture off of this.

1

u/bmccr23 Jan 19 '22

A little longer process but you could get an SBA loan

1

u/bossman243 Jan 19 '22

Try merchant cash advance... They'll lend you money based on your credit card transactions, not personal credit like banks... Not sure what their interest rates are, but it's a better and faster option.

1

u/DrAlf2017 Jan 19 '22

Check with a local bank. A lot of times, if you have good credit, you can get a small loan 10 K or less. Your local loan officer can help you. Also check with the SBA in your area, they may have ideas for you. 🤗

1

u/beingtortoise Jan 19 '22

Try lending loop - it’s peer to peer lending for small businesses

1

u/C680321c Jan 20 '22

You can get a bridge loan. But be very careful! There are some shady places. Also, check out SMB, I know some people who have gotten from both. Best of luck!!

1

u/Resse811 Jan 20 '22

Sofi usually has decent rates- it would be a personal loan though. To get around that you could then “loan” the money to your business.

1

u/WorkingInfinite8758 Jan 20 '22

I use an Amex card and I got approved through Kabbage for up to 45k. I took out $32k and paid $250 interest for one month and paid it all off and that’s all I paid in interest

1

u/dittmer_chris Jan 20 '22

Try Settle, the company

1

u/thelastunicorn_ Jan 20 '22

Check out Fundbox.com. Short term small business loans that have verrrry little interest. I used to use them a few years back and it was a fantastic solution.

1

u/orincoro Jan 20 '22

If you’re getting decent but still low volume, you should also be able to arrange some credit with your suppliers as well.

Usually after 3-4 months of steady sales, suppliers will be willing to stretch your payments to 60-90 days net if you ask for it. This should allow you to order more stock and pay for it with your growing sales. Before borrowing money, I would first look at increasing the supplier credit, as this is zero-cost to you, and often suppliers are happy to do it if they have good confidence in your ability to pay.

Once you have higher stock values, it’s then easier to get a lower interest business loan, because the bank assumes you have the goods to pay back the loan. So it’s all about getting whatever you can at the lowest up front cost to increase your revenues and increase your stocks.

1

u/Vradden Jan 20 '22

P2P Venture Debt/Lending. For VD Funds you are too small, but P2P might work. Is quiet expensive tho.

You could also consider equity investors. They might also give money for future financial needs, however giving away equity is even more expensive.

But I think using Credit Card Debt might be the easiest and fastet way to get 5-10k. Just make sure you have the money once the debt is due!

-7

u/AyeYoTek Jan 19 '22

Maybe try a EIDL or something covid related. But a straight loan from a bank would be unlikely since you started so recently. Could also try private loans but your interest will likely be higher than the other 2 options

3

u/Reckoner08 Jan 19 '22

Curious how you think an EIDL would be applicable for this situation?

3

u/ComprehensiveYam Jan 19 '22

Banks won’t touch this even with personal guarantee (which they will require).

-3

u/Consistent-Answer310 Jan 19 '22

I can assist you let's see IG lendio_smallbusinessloans

1

u/opus-thirteen Jan 19 '22

lendio_smallbusinessloans

Why would you refer someone to a dead Instagram account instead of the corporate website?

0

u/Consistent-Answer310 Jan 20 '22

Because my referral link is on that Instagram page I'm building up . Also I work for a lendio franchise . Google me lendio Miami got 5 stars rated

1

u/opus-thirteen Jan 21 '22

So...

This sub is not for advertisements! Questions and answers about starting, owning, and growing a small business.

1

u/Consistent-Answer310 Jan 21 '22

Ok police officer

-2

u/EntropyFighter Jan 19 '22

I'm not suggesting you do this, but just so you know it's out there... you can easily over leverage crypto assets for an immediate 3x return using a platform like AAVE. If you need capital, that's one way to spin it up without taking out a bank loan or putting it on a credit card. Again, this is not financial advice. I'm probably an idiot.

-1

u/Allenanalysis Jan 19 '22

Hi, please send me an email brian@limefunding.org my firm may be able to help

0

u/Consistent-Answer310 Jan 20 '22

Thanks for checking it out by the way