Borrowing Money to Grow
If your goal is to become a PowerSeller, keep in mind that you may need extra cash to acquire inventory, lease storage space, or pay for equipment or marketing. Listed below are a few sources and tips to consider when borrowing for your business.
Don't count on banks. It's unlikely that a bank will loan money to your eBay business unless you are willing to secure the loan with real estate, personal property, or other business assets — for example, the inventory of a brick-and-mortar retail shop. Banks and other financial institutions are looking for a guaranteed return on their loans, and eBay businesses are usually considered too speculative. Nevertheless, if your business has been around for several years and has a solid profit and loss statement (and perhaps a brick-and-mortar component) you may be able to convince a loan officer or the SBA to grant a loan. For additional information from Nolo, see the The Lowdown on Business Loans.
Borrowing from family and friends. If you’re borrowing from people close to you, make sure you sign a promissory note, calculate interest and principal, set up a payment schedule, and most important, respect the people loaning you money. If you don’t, you may find yourself embroiled in money disputes over Thanksgiving dinner.
You can easily draft your own promissory note. (Nolo offers several types of promissory notes for small businesses; view them in Nolo's business form section.) You can calculate interest and payments for use in your promissory note using this loan calculator.
Virgin Money.com. If you would like to borrow money for your business from people you know but do not feel comfortable creating the official documents yourself, consider using the services of Virgin Money.com. Virgin Money does not lend money but helps facilitate loans between other people. A Virgin Money loan specialist examines the terms of a loan that two parties have agreed to, helps to prepare a legally binding agreement (with secured collateral, if required) that includes those terms, and then creates a payment schedule for the borrower. The company also sends payment reminders to the borrower and manages the payment process through automatic electronic debits and credits to the borrower's and lender's accounts.
The added advantage of using services such as those offered by Virgin Money is that your loan may be structured in a way that corresponds to your business plans. For instance, if you believe that you could repay half of the loan within two years, you may set up the loan terms so that half the loan is repaid with a balloon payment after that period of time, with the remainder (and interest) paid off over the following three years.
Borrowing with credit cards. Many people finance their businesses with their credit cards, with all the attendant risks: Credit card interest rates are typically higher than any other type of loan, and extraordinary penalties apply if you exceed a credit limit or make a late payment. If you miss a payment on one card, all of your cards can raise their interest rates. When you take a cash advance on a card, there are more unbearable fees and usually no grace period, which means you pay interest from the day you take the advance, even if you pay off your balance within a month. Obviously, credit cards users can quickly get in over their heads. There are some ways to protect yourself, if you are reconciled to reading some fine print. When shopping for a card, be wary of teaser rates (low introductory rates that jump after a few months) and check the grace period (the period of time from the end of the billing cycle that you can pay your balance in full without being subjected to an interest charge). Many companies have been shortening their grace periods for purchases from 30 to 20 days. Shop around for perks such as airline miles, travel discounts, or other purchasing credits, but be aware that most cards that offer some type of "bonus" charge an annual fee for the privilege and limit the use of the bonus in some way. Always compare the periodic rate that will be used to calculate the finance charge.
Signature loans. The term "signature loan" refers to the fact that your signature is all that is needed to make it binding. Typically, these loans offers arrive in the mail from a bank, credit card, or other finance company; are based on your credit rating and history; and are in the amount of $5,000 or less. The terms of signature loans are typically the same as the terms of a cash advance on a credit card — high interest rates on monthly payments along with an assortment of fees. If your credit history is good or you own a home, you can likely borrow a few thousand dollars using a signature loan without pledging collateral. Signature loans can offer an easy way to get some fast cash, but they can also be risky if you do not understand the terms of the loan. As with credit cards, read the fine print!