If you’ve ever done research on inventory financing, you know that there is a LOT of information on the subject — everything from providers, to use cases, to cost, and more. Did you also know that some of this information might be misleading? There are a lot of myths about financing and we’re here to debunk five of the most common so you can make the most informed decision for your ecommerce business.
Myth #1: Business financing is the same as using debt to live beyond your means
Truth: If not used responsibly, financing of any kind can lead to a dangerous cycle of overspending, but there is an important distinction to keep in mind — specifically when it comes to business vs. personal financing. First, business financing is designed to help your business grow and most business lenders won’t actually approve your application unless your business is performing well and on a proven growth trajectory. Plus, you are most likely seeking financing for a specific growth opportunity, like bulking up on discounted inventory to increase your margins or launching a sponsored products campaign to advance sales. When it comes to personal financing, however, this information is not always relevant so you could find yourself getting approved for more money than you need or can handle.
At the end of the day, be sure to stick to business lenders who really value the health of your business and want to help you take it to the next level.
Myth #2: It’s better not to buy inventory if you have to take out financing
Truth: If you think that you shouldn’t have to take out financing to buy inventory, think again. In fact, using financing to buy inventory will help you turn inventory (and grow) faster — after all, you won’t have to wait to get your marketplace payouts. Instead, you can invest in new inventory as you need it and take advantage of your supplier’s flash inventory sales. On the flip side, if you don’t use financing for inventory and aren’t able to re-invest in it as you need, you risk stocking out and losing a lot more than your inventory.
At the end of the day, remember that while financing isn’t free, the cost of not getting it could be more expensive in the long run.
Myth #3: It’s never a good idea to use more than one financing option simultaneously
Truth: As a business owner, you probably know that there are different financing needs that arise in business — there are short term needs (like buying and turning inventory for a quick profit), long term needs (for things like new product launches), seasonality (to prepare for busy seasons like the holidays), or unexpected opportunities (you want to be prepared for surprises).
There are specific financing solutions for each of these needs, with varying loan amounts, payout options, repayment terms, etc. and using them simultaneously is totally fine so long as you use them responsibly.
Myth #4: With financing, your only costs are interest and fees
Truth: There are additional costs to financing that have nothing to do with money. First, stress. If you don’t make the right financing decision, you could put your business or your personal finances in duress. For example, if you ignore Myth #1 and use a home equity loan for business growth, but something goes wrong, you risk losing both your business and your home. Second, time. Researching financing options is time-consuming enough, but then there’s the actual application and funding processes to consider. And in ecommerce, you don’t have time to wait — after all, your inventory levels are at stake. At the end of the day, you want a solution that is efficient and built with you in mind, which leads us to Myth #5…
Myth #5: You’ll only get approved if you have a big established business
Truth: You don’t need a huge business to get an approval, so long as you find a lender that understands the nuances of an ecommerce business. Sure, banks tend to lend to very large businesses but there are other providers that cater to smaller businesses — some that are even designed for marketplace sellers.
Take Payability, for example. They offer a variety of cash flow solutions to fit your needs, they fund in as fast as 24 hours, and they make their decisions based on your overall account health and sales performance (not the size of your business or your credit). You could use Payability to get a large lump sum of cash, daily payouts of your income, and more. Visit http://go.payability.com/fbamaster to see how you can use their solutions to invest in inventory and grow your business 2.5x faster than your competitors.