One of the most challenging problems for an Amazon reseller is to find enough capital to buy and sell inventory. As a young company, it is often very difficult to get traditional bank financing. Banks often do not like to loan money to companies that are less than five years old. They are also hesitant to lend to certain industry groups they do not fully understand, such as e-commerce companies.
Therefore, many e-commerce companies turn to marketplace lenders who charge extremely high interest rates, ranging from 18% to 45% on an annually. These loans are often very short term, six months to one year, and often require daily or weekly withdrawals from your bank account. Another option are credit card advances; however, they are also short term and extremely expensive. Both these options can ultimately hurt your business and lead to severe financial distress.
SBA lending could be the perfect solution for both short-term and long-term financing of new industry type companies, like Amazon resellers. The SBA is an arm of the federal government set up to assist small businesses to grow and generate new tax revenues. The SBA does this by offering banks a 75% guarantee on your behalf to the bank, as long as they lend to small businesses under SBA rules and regulations. These loans start at $100,000 and go up to $5 million for working capital, and up to $14 million for real estate for your business. The working capital loans are perfect to purchase inventory for your business and would enable you to turn over inventory at a greater rate than with more expensive financing.
A lot of companies are not aware of the great benefits of the SBA. And, if they are aware, they believe it is extremely
difficult and takes six months to a year to obtain an SBA loan. Even though there are 396 pages of rules and regulations, an SBA loan can be obtained in less than 30 days, but often with in 6 to 8 weeks.
SBA loans carry a maximum interest rate of 2.75% over prime, which means today it’s capped at 7%. Working capital loans are 10-year term loans and real estate loans are 25-year term loans. There are no prepayment penalties for working capital loans and there are limited penalties for real estate loans. There are very few restrictions on how to use the money and SBA loans can only be canceled for nonpayment.
An SBA loan for an Amazon reseller can make a huge amount of sense. As a general rule of thumb, you need about $20,000 taxable income after (owner) salaries to borrow $100,000.
For example, if a company qualify for $500,000 and use the money for inventory: This loan would cost approximately $70,000 a year, including principal and interest payments. Let’s say that company turn its inventory eight times a year. The $500,000 using approximately 30% margin would approximately generate about $5.6 million of sales. Even if you’re only running 5% to the bottom line that’s $250,000 of incremental profit that you did not have last year. This helps you grow your business and apply for future SBA loans, up to the $5 million.
In summary, SBA loans can be a low-cost, long-term method of financing and growing your business. Companies like SBA Loan Group, www.sbaloangroup.com, a leading packager of SBA loans who specializes in e-commerce companies, can help you qualify for one of these loans. SBA Loan Group can greatly help you accelerate your growth and build a long-term profitable entity.
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