So I think we hear a lot of Cinderella stories about how
entrepreneurs started their business, but the truth is these
entrepreneurs probably got some form of help in the beginning.
So taking out a small business loan can help you start or
grow your business, but it is important to know what you're
actually getting into before you go ahead and borrow money.
So, if you clicked on this video, you probably want to get
a small business loan, and today you're going to find out if
getting a loan is right for you.
Your bank is not the only place to get a business
loan, there are several other options out there for you.
So we're going to talk about how to find the right loans for you,
whether you would be eligible and what you can actually expect
during the application process.
Hey, everyone.
What's going on.
My name is Michelle Bali, and if you've just stumbled
upon this video, welcome, welcome to learn Shopify.
This is a channel that is dedicated to helping entrepreneurs
who are looking to start or grow an online business.
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Other than that, let's hop right into it.
Why should you get alone?
So if you're an e-commerce entrepreneur and maybe you're
on the fence about whether you should actually get a loan or
not, it might be hard to know when is the right time, so, here
are a couple of signs that will indicate that it is time for a
loan for you and your business.
Okay.
Starting with cashflow, so not having enough cashflow could be a
sign that you are ready for a loan.
So for example, let's say you're in a position where
you're constantly having to pay for new inventory upfront.
But maybe your wholesale partners only pay you out at the end of
every month, there could be a chunk of time where you don't
have enough money available to pay for the things that you need to
run your business like inventory.
And this is a legitimate example of when you might
start looking for a loan.
Okay, so here's another one.
Let's say you plan on making your own products, for example.
You might need to invest in some equipment and a loan might
make sense if you need equipment that's either going to start,
maintain or grow your operations.
But the key here is that this investment should be showing
a return in the long run.
So that will validate your need for a loan.
Another example is that you might be needing a loan in order
to amp up your advertising.
One of your biggest costs as an e-commerce business is hands
down going to be advertising.
So whether that means that you're shelling out money on Google ads,
or maybe you've hired an agency to actually manage the ads for you.
A business loan can help you spend that money to be able
to make that money back.
So if you have a need for advertising, and you have a
solid plan on how you're going to actually do it, then a
loan might be right for you.
If you have a team or maybe you're working with freelancers, and
these are the people that are actually crucial to your business,
then getting a loan to pay them on time is going to be important
in retaining your workers.
Because what happens is when employees start to see that
their checks are late, that's really going to lower your
team morale, and that's just going to cost you in mistakes
and rehiring in the future.
So getting alone might save you time and money, if it means
keeping your people happy.
We can't foresee the future, so sometimes even our savings
cannot cover our mishaps.
So let's say your equipment fails for example.
A loan can help you get out of a sticky situation.
Getting a loan would make sense in this scenario so that you
can continue operating as usual.
So how do you get a business loan?
So, first off, you're going to want to prepare yourself
before you actually go ahead and submit an application.
So the first thing you're going to want to do is you're
going to want to decide how much you actually need.
You're going to want to be clear on what you need the
loan for, and that, that will help you decide how much you're
actually going to need to borrow.
So for this, you can use a loan calculator.
I will link that for you guys in the description box, just to
make your life easier, but having a precise number as possible
and knowing exactly how you're going to invest that funding,
that's going to help you choose the right loan, and that's going
to set you up so that you're responsibly paying it back.
Investigate, whether you need a business plan.
So most traditional business loans, they're not going to
process your application unless you have a business plan.
So this is kind of like your roadmap for the future and it
lets you lenders know whether your idea is a good one.
Now, if you're going the online route, those are not going
to require a business plan.
Shopify capital for instance, has no application processes.
And eligible businesses are pre-approved based on
a range of criteria like your total Shopify sales.
Also consider repayment terms.
So be realistic about how much your business can afford
in terms of repayments and think about any external
factors that could potentially put a wrench in your plans.
Also consider discussing your plans with a financial advisor,
that is going to give you some more personalized recommendations.
And it's also going to help you just learn more overall.
So I will leave a link for the US SBA in the description box,
if you are wanting to get in touch with the right community.
So the big question is which loans should you actually go for?
So let's take a look at term loans.
It's one of the most common and reliable types of business
loans is the term loan.
So simply put these loans are going to let you borrow money from the
bank, and then you're going to make some regular payments over time.
These are typically paid between 2 and 10 years.
Now that being said, term loans can have some pretty stringent.
Pretty tight criteria.
So if you have been operating for two years or less, you probably are
not going to have much luck with this type of loan, just because
you are going to need to be able to show a history of profitability.
Also, something to note is that this loan can take anywhere
from two weeks to two months for the loan to be processed.
So depending on how quick you actually need the money, this
could be good, or it can be bad.
For this type of loan, your lender is going to be private.
So that's going to be coming either from a bank or it's going
to be coming from an individual.
And these guys are going to be more interested in
giving out larger loans.
So let's say you're a smaller venture and maybe you just,
you don't need half a million dollars, then this type of loan
may not be the best fit for you.
Also keep in mind that most lenders are going to need to
see a minimum credit score.
And that's usually around at 680.
SBA loans.
So small business administration or an SBA loan is partially
guaranteed by the government.
And then they are usually issued by banks.
So they also do have some pretty tight lending standards,
but they're flexible terms and low interest rates can
make them one of the best ways to finance your business.
SBA loans are very similar to the standard term loans that we just
talked about, but the biggest difference is that SBA lenders
agree to offer more favorable terms to groups that might struggle
to secure traditional financing.
So if you're a minority or if you are a female founder,
then this could definitely be the loan for you now.
For this, you're going to likely need a formal business plan.
Like we just talked about, if you are not sure how to write
a business plan and we actually have an entire video, I'm just
going to drop a link right up here for you guys to watch later.
But in any case, SBA loans are usually going to be a
little bit more forgiving in terms of credit score as well.
They usually require a minimum threshold of 650.
So that's a little bit better than the 680 that we just talked about.
And SBA loans can also have a much longer term
than a traditional loan.
So you could even get a loan for as long as 25 years and they
are smaller, so you can get 10 grand at the lower end and you
can get up to around $350,000.
These loans are definitely friendlier to smaller businesses,
but one of the downsides is that they can take a little
bit longer to process, they can take up to three months.
Now that might be too long for you, and also they usually require
at least some sort of collateral, so maybe like real estate.
So if your business does default, you are personally liable.
Business planning is often used to secure funding, but
plenty of business owners find that writing a business plan
is very valuable, it helps them get their ducks in a row.
So that's why we've put together a free business plan
template, and that's going to help you get started.
So this business plan template is going to help you come
up with the mission and the goal of your business.
It's also going to help you determine your market size and
your opportunity, and you can even do a competitive analysis
with this business plan template.
So I will leave a link in the description box for you guys,
you're just going to enter your email and then we will send this
guide and directly to your inbox.
Another type of loan is the short and long term online loans.
So online loans have definitely become a more popular, especially
recently because entrepreneurs are looking for alternatives to those
traditional business financing that we've just talked about.
So with an online loan, you can do the entire borrowing process and
you can do that without a bank.
So all the way from pre-qualification to the actual
funding, you never actually have to set foot in a bank.
So it's nice because it's a pretty convenient way to borrow money.
And the requirements are definitely less stringent.
Like you're can have a lower credit score, like maybe 500, 600, and
that would still be considered acceptable by many online lenders.
Businesses that have been running for a year are often
also eligible, and the revenue requirements are also typically
lower, so around a hundred thousand dollars, and many of those cases.
These loans can range from as little as five
grand to around $250,000.
And that would be for the short-term loans and up
to half a million dollars for the long-term loan.
So, if you are looking for a smaller loan, this could
definitely be your best bet.
And this type of loan almost never requires collateral.
So if you lack certain assets, this might be a
really nice option for you.
And the best part is, decisions can be made in as little as, you
know, a few days, if not sooner.
So you might even get a same day decision, which
is super convenient.
This all sounds super rosy up to now, but I want to
make sure that you are also understanding the drawbacks.
So these loans can have high APRs.
APR stands for annual percentage rate, and it pretty much
measures the cost of borrowing money even more broadly
than just the interest rate.
It includes the interest rate, any points, mortgage broker
fees, and other charges that you pay as you're getting the loan.
So in some extreme cases, you could be looking at 99%.
Invoice factoring.
So invoice factoring is also a very popular option, but
it is definitely considered a little less conventional.
So, if you have the type of business that relies on invoices
from your clients, you might be familiar with having to wait as
long as three months to get paid.
Now, the problem with that is that that can really
affect your operations.
It can affect your cashflow.
And I know a lot of us small businesses can't really afford to
wait that long before getting paid.
So there are companies out there that provide
invoice factoring services.
So what this is is they will buy your invoices out.
This is also known as purchasing accounts receivables.
So instead of waiting for overdue invoices to be paid
by your clients, you just sell your outstanding invoices
and then you get paid faster, sometimes in 24 hours.
It is a trade off though, because you're going to lose some of
that money that's owed to you.
Invoice factoring companies are going to pay you around 70% of
the invoice, um, if your credit score is so-so, but if your
credit score is pretty good, then they might actually pay
90 to 95% of the total invoice.
Something else to consider is that factory might not be
right for you, if you have a lot of smaller invoices.
At this point, the service fees don't really make
much economic sense.
If you are serious about starting an online business, then Shopify is
going to have everything you need.
It makes building an online store super fast and super easy,
and you can even get started with a free 14 day trial.
There is no credit card required, which is really nice and the
powerful features and the free apps are really just going to
simplify running your business.
So I will leave a link in the description box for you guys, if
you are wanting to get started with your free 14 day trial.
I know just thinking about borrowing money, whether it's 10
grand or whether it's a hundred grand, it can seem daunting,
but hopefully, you know, after understanding the basics and
understanding what's involved, you feel more confident and you feel
more clear on how everything works.
So hopefully this video gave you some added confidence, and it
made you believe that loaning can be realistic and can be doable.
If you did find this video helpful and make sure that
you are giving it a thumbs up, that actually really helps our
channel and our community grow.
And we have been seeing a lot of growth, especially
over the last year.
So it's been really nice to see that there is a community of
entrepreneurs who are excited to learn and yeah, that's
definitely been so nice to see.
So if you do have a request on what video you want to see next.
Definitely let me know in the comments, a lot of you
guys have been giving us some inspiration on our topic lately.
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We release videos just like this one every week.
So if you like these kinds of like simple, actionable tips,
um, and you are looking to grow your online business, then make
sure that you are subscribed to this channel, Learn with Shopify.
Our channel is really dedicated to helping you start, run or grow
a successful online business.
So hopefully this video has been helpful.
Thank you guys so much for watching and I will see you in the next one.
Bye.