Traditionally, businesses rent physical spaces from where they sell goods and offer services directly to customers. That has changed. Per wpforms, about 24 million eCommerce stores are disrupting the market with 14.1% of all retail sales worldwide. These are businesses offering goods and services online and have their employees working remotely. Thus, most of them have no physical presence. And there are a lot of funding solutions that provide loan for eCommerce Business.
But just like the traditional brick and mortar stores, eCommerce stores need capital to keep their business operation afloat in the cloud. Since they don’t do business the traditional way, accessing a working capital loan via the traditional route is harder.
Luckily, with the rise of eCommerce has been the rise of e-lenders. Fintech lenders like Camino Financial offer working capital loans at favorable terms. They’ve got a simple application and pre-approval process, followed by a quick approval period of 1-2 days.
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5 risks of getting a working capital loan as an eCommerce business
Accessing debt is critical to growing your eCommerce business. You need to understand the risk you’ll face getting a loan as an online merchant so that you sift your options, choose the right lenders, and obtain debt at the right terms.
The risk of rejection
Lack of physical presence is the largest hurdle you’ll face trying to obtain a working capital loan from traditional lenders. Banks want to know where they can find you to value your inventory and other business assets to build your risk file. Since your e-store has no physical presence down the streets, traditional lenders are more likely to label you as “high risk” and refuse to lend to you. That’s true if you’re a drop shipper or rent space in a fulfillment partner’s warehouse to store your inventory.
It’s always a smart idea to keep personal finances separate from business revenues. But if your eCommerce business doesn’t have a solid credit profile and an established history of profitability, lenders may require you to take personal responsibility for the loan.
You may be required to use your social security number and sign documents declaring to repay with your own money and personal assets. If your business becomes cash strapped later on and you’re unable to pay, that will show on your personal credit report. It may impact your credit score and make it harder to obtain personal loans in the future.
Risk of losing personal assets
When you take personal liability for the loan, you accept to pay with your income and assets. Plus, banks may not be willing to talk until you pledge a personal asset as collateral for the loan. Thus, you may lose your car, house, or whatever personal asset you attach as collateral to secure the loan. That’s only if you’re unable to repay as required.
Strict qualification conditions
Many other brick-and-mortar businesses keep banks and credit unions busy every day. They are one step ahead of you because they have a brick-and-mortar presence that clearly defines their business vertical and model.
Since you ship packages online and may not carry physical inventory yourself, banks have to ask many questions to figure out your business model and create your risk file. You’re more likely to face slightly stricter lending conditions than your brick and mortar counterparts.
To avert the risk, lenders may demand good to excellent personal and business credit scores, and your tax and accounting statements need to be in tip-top shape. Your loan limit may and repayment terms may also take a hit.
Ultimately, lenders will hit you with high interest rates to make up for the risk of lending to your eCommerce business. Your rates are more likely to be in the double digits. Triple-digit predatory rates are also possible if you work with the wrong lenders. That may significantly increase the cost of borrowing and may sink your eCommerce business into unmanageable debt.
Fintech loans for eCommerce businesses
Fintech lenders use a similar business model as your eCommerce business. Just like you use technology to offer goods and services online, they use financial technology to offer better, faster financial services in the cloud. Unlike traditional lenders, they can understand you! Leading the pack is Camino Financial. They offer working capital loans at favorable terms within a short call to meet your business necessities.
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