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Seller Dynamics
Seller Dynamics
Seller Dynamics

Funding your marketplace business - Bitbond

We are pleased to welcome Bitbond to our Seller Dynamics news and blog pages as an expert guest. Bitbond are an innovative lender for marketplace sellers and we welcome their support for online retailers.

Amazon financing


For many budding entrepreneurs, Amazon and other online marketplaces have helped turn their dream, of giving up their day jobs and flying solo, into a reality.


To start selling profitably on Amazon, you will need a certain amount of working capital. Even if you intend to play it safe until your business is up and running, you will still need to invest in good products, images, listings as well as paying shipping and marketplace fees. The monthly subscription fees are modest, the real cost is the category dependent percentage fee, which is applied to the sale of an item.


If we now remember that most wholesale suppliers require a substantial minimum order quantity, it becomes clear that getting external financing can be crucial. Without it, becoming a full time Amazon seller can be a tough proposition.


Please bear in mind that this shouldn’t be viewed as financial advice, this is just for your information.

Financing from friends and family

This might seem too obvious to miss but it is surprising how many people do. Before searching for third parties, your first port of call should be your family and friends.

38% of funding for startups comes from friends and family, totalling over $60 billion per year in the US alone.


Under most circumstances, people close to you will give you more favourable interest rates than third parties. The downside here of course, is that if your venture fails and you can’t repay your debts, you may jeopardise the relationship.


Another downside is that the repayment can get messy. To illustrate this point, let’s assume you borrowed from your father, with the agreement of making monthly repayments for 12 months at 5%pa. These terms are favourable and they represent an attractive opportunity.


However, should your father need the money back sooner than anticipated, you could find yourself having to sell off your stock at a significant loss because you need the money asap.


If you borrowed that amount from a third party, you would have to pay a little more, but you could count on the loan terms 100%.

Financing from a bank or government

Historically, small business owners would go to their local bank to get the money they need to grow. Bank loans have the benefit of being relatively cheap, but carry the disadvantage of being tough to get, and are likely to seek a security over property.


Because Amazon and eBay sellers typically have irregular streams of income, banks can see them as risky. This is especially true in the wake of the financial crisis, when banks tightened the purse strings.


Nevertheless, a bank or government loan can be an attractive proposition for Online sellers, particularly for those located in the UK and US. In the US, the government offers SBA loans, with the Microloan program being the most promising for eBay and Amazon sellers.

These typically provide up to $50,000 in working capital by the US government, but dispensed through nonprofit organizations. The average loan size here is $13,000 with a maximum duration of 6 years.


The downside to consider here, is the tiny 18% approval rating and the necessity to be located in the US. Online sellers in the UK, will want to check out the government backed Startup loans, which provide up to £25,000 at 6% per year.


With this in mind, it is finally worth considering that bank and government loans may take several weeks to process. Because of their duty to the public, both institutions try to be as thorough as possible, dragging the process out until they are convinced that they can bare the risk.


P2P financing with Bitbond


Peer to peer lending has become increasing popular in recent times. In terms of Amazon financing, many platforms in this space are better equipped to serve Online sellers than traditional alternatives like banks or government.


P2P lending platforms work by bringing creditworthy borrowers together with retail and institutional investors. Online sellers and small business owners then publish a loan on the platform which best suits their needs, and investors lend them the money.


P2P financing usually involves interest rates ranging from 12-60% pa, and are paid off in monthly installments over a set period of time.


The innovation here is how Bitbond assesses the creditworthiness of borrowers. This is done by the connection of strong Online selling accounts, which are evaluated by our machine learning algorithm to produce a corresponding rating from “A” to “F”.


Here is a video of our CEO presenting the process at this years Finovate in New York:

https://www.youtube.com/watch?v=UBCOalBIGPM


As you can see, we do not check your credit score with companies like Experian, Equifax, FICO or TransUnion. Instead we ask you to connect your eBay, Amazon, MercadoLibre, Google Analytics (and many more) accounts during the application process.


This gives our automated scoring algorithm enough data to assess your creditworthiness. Therefore, an Amazon seller with say $60,000 yearly revenue and high quality products, would be much more likely to get a loan approved on Bitbond than elsewhere.


Here are the key facts about Amazon financing on Bitbond:

  • It takes 10 minutes to complete the borrower application

  • Interest rates start at just 1%;  much cheaper than many of the other options.

  • Your interest rate corresponds to your credit rating, which is assessed in accordance with the quality of your Amazon, eBay, MercadoLibre etc. business.

  • Bitbond maintains a range of resources dedicated to helping its Amazon sellers.

  • The application is online and can be done from the comfort of your chair.

  • Amazon financing on Bitbond is available globally

Conclusion

Financing the growth of an Amazon store can be a tricky endeavour and you should always make sure to think about the associated risks prior to taking on debt.


But if your business is running smoothly and your profit margins are healthy, there is no reason not to take advantage of efficient third party financing. Which solution is best for you will depend on the strength of your online business, and goals you hope to achieve.


Whichever solution you decide on, make sure to do your research to find the best option for you.


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