E-business or eCommerce has grown exponentially globally with the rise of technology and the popularity of online shopping. The convenience it provides eases people’s tasks and improves their quality of life, such as delivering items directly to their houses. Also, they’re accessible anywhere and anytime.
If you’re a business owner planning to start a new e-business and try out this industry, you’ll need to consider a few things. Like a regular business, you’ll need funds to launch an eCommerce business properly. However, if you’re facing financial difficulties, there are various loan plans you can look into to aid you with your business launch.
However, what are their differences? How can you know that a particular loan is better for your business? To learn more, here’s a brief comparison of different types of loan you can apply to.
A personal loan is one of the income loans you can apply for your startup online business. It’s also one of the loans you can get to consolidate debt, pay your bills, or face unexpected emergencies. Banks and credit unions also approve personal loans for business expenses.
You can get a personal loan without offering collateral to borrow money. Still, there are also secure options, depending on the institution or online lenders you plan to apply to.
One of the most common disadvantages you should look out for in personal loans is that there may be lenders that will present higher fees, which will only increase your expenses.
Personal loans might compromise your credit score if you fail to keep up with your monthly dues. Thus, applying for another loan in the future might become more challenging unless you make it up for your positive repayment history.
Peer-to-Peer (P2P) Loans
A peer-to-peer loan is a personal loan you can get directly from others. This means you don’t have to go through the process of applying to financial institutions. There are available P2P lending websites that will connect you straight to potential investors, who are lenders aiming to get better returns.
However, some investors may present higher rates than traditional loan providers. If you need immediate funds but don’t qualify for traditional loans, you can receive P2P loans quicker than a bank.
Line of Credit
The credit line is slightly different from the other loans mentioned so far. Instead of getting the lump of cash in one transaction, you can borrow up to a pre-approved credit limit. This means you can obtain a loan and make repayments again and again as long as you don’t exceed your limit. You now have continuing access to funding for your eCommerce business.
You’ll only need to pay the interest on the borrowed amount. However, some providers may require late payment fees with high-interest rates. So, it’s best to inquire to the provider initially before heading right in and applying for one.
SBA loans are offered to small business owners by the Small Business Administration. However, this loan is only available in the US. If you’re a citizen of the United States and eligible for the loan, you should consider taking SBA loans.
One of the reasons is that they present low rates with long repayment periods to business owners like you through participating banks, credit unions, and online lenders.
The process can be lengthy and tedious, but once guaranteed, it makes it easier for you to receive your loan in a substantial amount with advantageous terms. On the other hand, you should take note that SBA lenders might require collateral to reduce risk. So, it’s best to contact SBA to understand what plan fits you best and the possible requirements you’ll need.
Traditional Bank Loans
Getting loans for your business in traditional banks can be difficult for some because the eligibility criteria are relatively stricter than other loan providers. However, they also present many advantages, such as giving you complete control and authority over your company.
Other providers will require you to sell your stock to an investor for immediate funding, which means sharing profit with them. Traditional bank loans are more like a temporary financing solution until you pay off your loan to them. Then, you’re free from obligation to the lender, which is the traditional bank.
However, another drawback of traditional bank loans is that you might not be able to utilize the money you borrowed for an ongoing project for your business. It’s because they prefer to loan to businesses that will use their money to invest and grow to generate returns. So, if you plan to loan as a temporary solution for a cash flow problem, you might be at the lower priority in a traditional bank’s ranking.
Figuring out your financing options as a new business owner is one of the most challenging aspects of building a business. You’ll need to do various research while seeking professional help from advisors and experts. This is also more important if you’re also trying to ensure the financial security of your business in the long run. Still, you should take this with a grain of salt and understand how your local traditional bank loan process and award business loans.
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