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Is a Business Loan Right for You?

4 questions to ask yourself before taking out a loan

A business loan can be a great way for an online seller to grow his or her business, but it may not be the right option for everyone.

There are a few things you need to consider before you decide to take out a loan. The last thing you want to do is struggle to make repayments. Here, we provide you with four questions you’ll want to ask yourself before entering the world of external finance.

Is the timing right to take a business loan?

Every entrepreneur wants to see his or her business grow—the quicker the better. That said, applying for capital within the first six months of starting your online business might be a little risky.

Giving yourself more time will give you a better feel for the demand for your product, and help you decide whether you are happy selling in your chosen category. You’ll also be able to gather sales figures that you can show the finance provider, so he or she can give you a far better rate for your loan than if you couldn’t provide any information.

What do I need the capital for?

Before taking out a loan, it’s always a good idea to ask yourself what you plan to use the capital for. iwoca business loans have a maximum term of six months, so we always ask our customers if they’re confident the capital can be turned into a profit fairly quickly.

Do you have your eye on a specific product you want to add to your inventory, or do you need cash to invest in technology? Having a plan of what you want to use the capital for will make it easier for you to make the most of the loan, and it will make it easier for you to take out a loan for the amount you actually need, not what you think you need.

How do my margins look? What are my margins?

Believe it or not, while a business loan can help many online sellers go beyond their targets, more capital doesn’t always equal success

If you want to use a loan to widen your product range or buy more stock, you should make sure you know your profit margins. This will allow you to know if you can make a profit from a certain offer.

As you try to calculate your margins, include the eBay and PayPal fees you pay, interest charges and other costs related to your business. You can find example calculations for a range of products at iwoca picks.

Knowing your margins will not only help you understand your business better, but it will also help in the process of getting a business loan.

Will the extra cash help my business now?

Believe it or not, while a business loan can help many online sellers go beyond their targets, more capital doesn’t always equal success.

For instance, if you decide to start a new website with the money you get through the loan, make sure it’s a needed expense. Don’t get caught up in a great deal you see on a shopping cart’s website. Only do what you feel confident will benefit your business.

Explain your thoughts to your finance partner, and he or she can help you figure out whether your plans are sustainable. Make sure the loan will turn into a profit, that you have a plan for it and that you feel confident the timing is right for you.

Asking yourself these questions will help you better determine if taking out a business loan will help you. And if you need a little more help, keep in mind that getting an outside perspective can sometimes be really helpful if you still feel uncertain.

Perhaps someone you know can provide some financial advice. If not, your financial partner will always help you address anything you are unsure about.

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About the author

Camilla Gilbro
Camilla is the community manager at iwoca. Since graduating from Copenhagen Business School, with a degree in business communication, Camilla has been working to make life easier for small and medium enterprise businesses by offering advice and sharing experiences via entrepreneur magazines and websites. She loves a good chat about anything, from business plans to social media. Opinions expressed here may not be shared by The Online Seller and/or its principals.

  • Just to add to this fantastic piece, majority of online sellers will be looking at profit margins of 50% or higher. A loan definitely gives you more buying power and you can ask your supplier for better prices. Always keep your profit margins healthy and in check! 🙂

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