Max and I did all the possible eBay seller mistakes in our early years on eBay, including taking loans at the worst possible timing.
This guest blog by Chris Grundy from Bitbond – explains the why, when and how of growing your eBay business (correctly) with loans / financing options.
eBay financing – Top 3 sellers growth opportunities
As a busy eBay seller, you want to spend your time increasing sales and growing your business. Keeping your eBay listings up to date is at the top of your priorities. Administrative duties involved with running an eBay store are often regarded as chores.
eBay financing is frequently regarded as such a chore. For many online sellers, getting a loan to finance the expansion of their store is untried territory. Interest rates and fees often scare away people who may actually benefit from taking out a loan. But reliable information on this subject is quite hard to come by, which is why this blog post should prove valuable to many readers.
Because getting the right financing at the right time, results in a significant competitive advantage. Being able to make a bulk purchase in preparation for Christmas for example, allows you to hit the ground running and maximise your revenue. Alternatively, additional funding can help weather the storms of seasonal fluctuations in demand. This guide will help illustrate when financing is a good idea for eBay sellers, and how much of an impact it can have.
3 Cases when eBay financing helps you!
The decision to take on additional funding to grow your eBay shop should not be taken lightly. Getting a loan entails a financial and legal responsibility to service your debt. There are three occasions however, when getting eBay financing is a good idea.
#1: Enable growth by keeping up with demand
As your store grows, you will need to buy more merchandise to keep up with rising demand. Most eBay sellers find it tough to finance bulk purchases despite running a profitable eBay business. In this case, it makes a lot of sense to secure additional funding.
When your ebay store is running healthily and you want it to grow, a loan is a viable option. Indeed, it should be considered just another tool in your extensive eBay tool box. Just like you use Crazylister to create beautiful listings, you can use an ebay loan to grow your inventory.
To see if your business is running well enough to grow, sum up your inventory plus your receivable and subtract payables. This will give you your net working capital, which is a good signifier of your stores current health.
Below we can see an example of an eBay seller with $8,000 monthly sales and a net working capital of $3,500.
The $3,500 here is financed through personal savings or other streams of income. As demand increases however, so does the need for additional funding. By December, net working capital has ballooned to over $5,000. Unless the seller in this example, significantly increases his gross margin or agrees a long-term payment plan with his suppliers, he will need to find a reliable source of financing to sustain his growth.
In this case a loan would be a good option.
#2: Overcome seasonal volatility and revenue fluctuations
eBay financing can often be the best way to overcome seasonal fluctuations in revenue. Most sellers will know, that all months are not equal, and some months are more difficult than others. This is true no matter the niche, and sellers are well advised to take counter-measures.
One such counter-measure might be to reduce your inventory and reach out to your suppliers regarding more favourable payment options. Although this is an effective way of getting through poor-performing months, you may encounter a significant short-term liquidity gap.
To counteract this, you can either sell your merchandise at a vastly reduced price, and take potential losses on the chin; or you can find external financing to plug the gap. In many cases, the flash sale proves to be the more expensive option.
By selling your stock at a reduced price, you are effectively taking on a double-loss. Not only are you selling at a lower price than you bought, but you are also foregoing the profit you would have made in better-performing months.
A loan can often prove vastly more cost-efficient. To illustrate this point, let’s assume you bridge a short-term liquidity gap with a loan of $8,090 over 6 months at 19.07%; similar to this eBay powerseller.
You use the additional funds to keep hold of your inventory and prepare for the better performing months to come. Instead of shrinking, your business flourishes. Every month, you pay a portion of your loan back plus interest. Interest in this example would be around $80 per month on average. A reasonable price to pay for control over liquidity and your eBay store’s growth.
#3: Be ready for deals and finance large orders
Most eBay sellers have missed out on a deal because they just didn’t have the disposable cash. Discounts from suppliers and new business opportunities are common occurrences in the world of online selling.
Being able to take such opportunities when they present themselves, gives you a significant advantage over your competitors. By making bulk purchases at discounted prices, you can pass on savings to your customers; driving sales and growth.
Thus, a loan can help you make the most of short-term opportunities and ensure your eBay store never misses out on a chance to grow.
When is eBay financing a bad idea?
External financing is only a good idea when your business operations are running well. To improve an already well working machine.
Getting a loan to make up for losses is definitely a bad idea. In these cases, additional financing often worsens the situation, as money leaks out of all sides of the business and the seller is left in a worse place than before.
A loan is also a bad idea when bigger investments already loom on the horizon. Should you fail to repay your loan, this will most likely impact your national credit score. This would make certain financial instruments, like a mortgage, very hard to get in the future.
About the author
This is a guest post by Chris Grundy of Bitbond. Chris is a peer-to-peer obsessive and avid tech fan who has written for a variety of Online publications as well as regularly contributing to the Bitbond blog. You can follow him on Twitter or connect on LinkedIn. Any feedback is welcome and encouraged.