Word Count: 1,110 | Time To Read: 6 mins | Seller Category: Intermediate / Advanced
Almost any business needs funding at some point. Typically, when cash is needed in a hurry you don't have the time to search for the best options, go through lengthy application process, etc., you have no option but to take whatever is put in front of you.
So, the consequence of not being prepared are high interest rates, predatory fees, etc., but with the clock running against you, there's little you can do about it.
Having access to a small business loan (or how we call it Amazon Loans) will never a bad thing. However, there are specific reasons that should make you consider to be prepared with additional funding for when (not if) the time to spend some urgent cash comes. In the end, you're a business owner, and this is what owners do, prepare for growth and for the unexpected.
Here are the six reasons that should make you consider applying for a small business loan (even if you don't need the money right now).
This lady clearly got a loan on time and now she's happy about it
Money To Cover Working Capital Shortages
Working capital is the money you need to run your business on a day-to-day basis.
Working capital is measured via a cash flow report (check task 2 of our post on critical tasks for successful Q4 sales performance where we talk about cash flow) and is the blood of the business.
Think about this scenario: Amazon places a hold on your sales proceeds. Not big deal. You recently had a sales slump (for any reason) and your highest season is coming and you need to replenish your inventory. Nerves start to get out of control. On top of that, you have to pay fixed costs, like storage, or your virtual assistant. By this point in time, you're not sleeping anymore.
The above three lines are the nightmare of any business owner, don't you agree? Well, the key to avoid this nightmare is to have previously applied (and successfully obtained) funding via a small business loan.
What if you don't qualify because credit score issues? You need time to work on that. What if there's a bad economic scenario and loans start to get harder to obtain? There are many reasons that can affect your ability to obtain a loan, so don't get caught in bad times.
The key here is timing. As long as you're ahead of time, you'll always have the better cards dealt to yourself.
Money To Expand Operations
If your Amazon seller business is booming, you may need to order more inventory, advertise, and even add talent. In this case, a small business loan makes strategic sense. The opportunity to expand your business and achieve greater profits are far greater than the cost of interest payments.
We wrote about this topic in a previous post about In-Portfolio Purchases.
The key here is opportunity. Those who can act quicker have the advantage.
Money To Purchase Inventory
If you have hot products or limited inventory, this is another strategic reason for getting funding for your Amazon seller business.
In fact, not doing so may damage your business in the form losing the battle for the "Buy Box" and losing rankings due to low inventory levels. This is especially true of Amazon marketplace businesses that are seasonal in nature.
If, for example, a business makes most of its sales during the holiday season, you have to be prepared way sooner than any other time of the year, because every other seller will also place orders with manufacturers and you don't want to be in queue. Put that interest into your season cost structure and run with it. Don't over think it.
The key here is preparedness. Never be caught off-guard.
Money To Purchase Equipment
You may need addition equipment to meet increased orders or to expand your product offerings. If that's your case, congratulations! that suggests business is booming. Getting funding ensures you will capitalize on the opportunity to increase revenue and profit.
What if you let the chance of getting that new equipment pass? It may allow a competitor to offer better delivery terms and shut you out.
If you need to expand your product offering you should get a small business loan. The reason is that while that new product completes its cycle and start bringing new income in, you can't park your working capital there. Expansion involves also expanding your capital.
Expanding your product offerings will make you more competitive (provided you did the right research), in the form of “one stop shop,” and provide additional sources of revenue.
From a tax viewpoint, getting a loan can be a savvy move. You can take a significant tax write-off the first year and depreciate the rest of the equipment over its economic life. In either case, the additional revenue and tax write-offs associated with purchasing the equipment can outweigh the interest payments. Consult your accountant about this particular topic for more information.
The key here is strategy.
Money To Consolidate Debt
Small businesses often incur in numerous debts with steep monthly payments. If you find your business in a situation of making payments to numerous high-interest debts, consider consolidating those into a simple, transparent monthly payment and free up cash flow to run your business.
The key here is savings. Don't pay more than you should.
Money To Pay Business Income Tax
Many small businesses file their taxes annually, and surely they don't make monthly cash provisions for it. After all, we need that money to run the business, right?
Unfortunately, when taxes day comes, you may find yourself without enough cash to pay for it and will end up using your credit card (ouch!). Should you have applied for a small business loan, this day would pass as any other day and remove the stress associated with dealing with the IRS and the potential penalties they may impose.
The key here is don't let the IRS come for you!
By this point we know you must be thinking where to get these types of loans:
Option 1: Amazon's own program Amazon Lending, but it's invitation only
Option 2: Sellers Funding Amazon Loans
Option 3: Your bank's Small Business Loans
So, we want to ask you: have you ever even considered how much you may qualify for? See how much funding your store pre-qualifies for without a hard inquiry. Get to know the process and your options.