Should You Leverage Credit To Build Your Business?
My name is Jeremy Bass with Cybertron Electronics LLC based out of Kansas, USA. Today I want to share a little insight into the world of financial leveraging. All the information below and insights are my opinions. I always suggest doing your own research and talk to representatives in the industry before making your final decision. This guide is going to assume you're just starting your journey or you're a one-man operation with no investment. When starting out in your new eCommerce / business venture I would stay far away from leveraging any assets you have to build the business. You want to bootstrap your business with as little cash as possible. I wouldn't even think about leveraging yourself with loans or debt for at least 6 months. You will want to wait until you really get the hang of the business and understand the future roadblocks you might hit.
When you’re at the point where you’re making money and you have all the data of how your business operates on a monthly basis. Your selling on eBay, Amazon, Merari, OfferUp, Local business, wholesale, etc. You probably have gotten an email from PayPal asking if you need any capital. "PayPal offers two types of business loans: PayPal Business Loans and PayPal Working Capital loans. While the business loans program is similar to a traditional business loan with set payments and a credit check, PayPal's working capital loans require no credit check and payments are drafted from your sales. " For example, were going to assume "Entrepreneur A" is making $1,000 a day in gross sales. $30,000 a month consistently. One of the key benefits of the "PayPal working capital loans program" is that takes a cut of each sale. Starting from 10%. They also have a calculator on their website for you to play around with. In this scenario, we are going to assume you took a loan of $10,000 with a payback of 10% daily. Carrying a 10% interest (you pay PayPal $1,000 over course of loan) Pros Vs Cons Pros: A. Builds up your inventory quickly B. If executed properly you will sell more inventory quicker and can reinvest in more inventory to compound your profit. C. Use other people's / company’s money to grow your business and earn more profit. Cons: A. If your business crashes overnight you will have to pay on the loan. Remember when you sell on Amazon, eBay etc. they have all the control. I've had to rebuild my business 4 times in the last 5 years. B. You have to make sure you are really making a profit and know the market extremely well. It's a numbers game. If your only making 15% on each order. Taking a 10% hit on every order will kill you. Even in the best of times, you have to think about this stuff. C. Can you handle the stress that will come along with leveraging your business financially? Operating a business is stressful already make sure you can handle adding more. Back to this scenario of $10,000 loan. You will be paying $100 a day or $3,000 a month. It will take a little over 3 months to pay the loan off. Your profit margin will vary on each individual but for this will say 25%. So, in theory, you will make $2500 on the $10,000 minus the $1,000 fee, so your profit will $1,500 after everything. It probably would be more if you turn your inventory once a month on all the $10,000 capital you got ($3,000 - $4,000 profit).
Another company that I have used is called BeHalf for their line of credit program. They will pay your vendor and then you will make weekly or monthly payments until the loan is done. Between 30 and 180 days. The beauty of leveraging this company is the Net 30. This means you will not have to make a payment for 30 days! I've been using BeHalf for years now. It is great for building your history with them just in case you get in a bad situation. You can use them to increase your cash flow temporarily or if you find a great deal but don't have enough capital to invest in it. That's what I mainly use Behalf for is when I get a rare opportunity but don't have the liquid cash to purchase the deal. And as you see below it will build business credit for you. Behalf charges you $20 per $1,000 per month. They also have a calculator too when you log in.
One last mention in this blog is your local banks. Go and see if you qualify for a loan or a line of credit. You will have to assets usually to get approved. But in most cases, your local bank will have the best interest rate. I have a line of credit with my local bank. I would like to add another point. Even if you don't want to or need the money, I would at least open a BeHalf account. The reason why is you never know when you are going to be in a bad financial situation. So when that happens you want to be able to keep going. Over the last 4 years, I have been building my reputation with all these companies and this is one of the main reasons why. This article was written by Jeremy Bass of Cybertron Electronics.