Loan for Amazon

[Tafa]

I am starting a business where I sell my products on Amazon and other online avenues. Right now I can only afford to buy small quantities so I would like to get a loan to help me get more products.

I am currently looking at the Virgin start-up loan for an amount of 20,000. I am confident that I can cover the monthly repayments and I have an exact plan of how to invest it, however borrowing so much money feels quite daunting.

Should I go ahead and do it?

 

[Mark T Jones]

Part of the start up loan process involves creating a business plan and projections which should illustrate the need and ability to repay a loan

If you are honest in this part of the process, it should be the answer to your question

 

[Tafa]

Part of the start up loan process involves creating a business plan and projections which should illustrate the need and ability to repay a loan

If you are honest in this part of the process, it should be the answer to your question

Thanks Mark

 

[PaulBappoo]

Are you actually running out of stock on a regular basis? Do you want to increase the different lines of products that you are selling? Do you want to be able to increase the margin on each product by purchasing in higher quantities?

You mention that you want to buy higher quantities but you dont say way. Also, there could be a great deal of dependency on market trends, season, fashion etc for your sales and revenue, so that kind of information would be necessary in order to help you answer the question about getting a loan.

Personally I prefer to find everything out of revenue as much as possible, if you are already selling online, then some form of organic growth should be possible and a loan should only be considered as an accelerator for that where positive ROI over an above the loan interest value can be demonstrated.

 

[Tafa]

No I haven't run out of stock because I have only just started but the data suggests that I probably will run out. Ideally I would like to wait until I have a bit of track record but it takes weeks to apply for the loan. I if run out of stock it will damage my reputation on Amazon and I will lose out on weeks of revenue.

Yes I do want want to use the money to increase the range of products that I will be offering because I simply don't have enough capital to launch an additional product. I would also like to use the loan to increase the margins by ordering higher quantities and by lowering the shipping cost through sea freight. I would also like to use the loan for product development, I have quite a few ideas on how to improve the current product.

Manufacturing in higher quantities would make it economically viable to introduce product improvements. Whilst also making shipping by sea freight worthwhile. Historical data over the past few months suggests that the demand does not depend on the season and it is unlikely that this product is affected by fashion trends. The data from Google suggests that searches for this item are on the rise. My first order cost £2,000 and I will need £6,000 for my second order to accelerate the growth.

Yes organic growth is possible but it will be very slow. Also the loan will come with a mentor and will be very valuable. The sales projects show that it shouldn't be a problem to cover the loan repayments. Especially considering that I will not spend the full loan amount at the same time. Even if I end up breaking even, the overall interest to pay back over 5 years is less than 5k which is possible, even on minimum wage.

 

[jimnotgym]

Tafa there was a suggestion above that you should write a business plan. Start right now with a cashflow forecast. This is much much more important than porfitability or running out of stock. The concern is with you talking about goods with long lead times, will 20k be enough? Cash cash cash

 

[IanG]

What is your margin? Because at £2k investment last time you should really want to have around twice that available now, meaning when that goes out at the same margin you'll have enough ready money for your £6k order.

You have no data on your new lines, your assumption that it will go out at the same rate is dangerous.

Product development also - your current momentum is based on selling one thing well, not having brought something to market.

Shipping costs - will increase your margin but at what cost - it won't make the stuff sell quicker and you'll need to make repayments.

Bottom line unless you're doing anything special or have found something to do on Amazon that hundreds of other people aren't already then I'd be standing alone, loan in lieu of revenue is just a cost.

 

[MOIC]

@enquirer - You have hijacked the thread.

Open your own thread as you are asking questions which are different to the OP.

@Tafa - Does the loan need to be £20K?

A projection/forecast is just that and in most cases differs from how the actual business pans out for that period.

I would suggest decreasing your expected sales by 50% and increase your expenses by 25% and see if the figures than make it viable.

What is your current investment?

What is you current turnover?

What is your current Net profit?

What is your turnaround time from the point of paying for goods until receiving sales revenue?

Will you need to increase staff/storage/other to cope with the additional products/sales?

A good mentor will advise you correctly, based on the answers you give to the above 5 questions.

Good luck

 

[Tafa]

Thank you everyone for your responses!

As a result of your comments, I was running different cashflow scenarios all night in Excel.

I can now see how getting a loan could actually end up having a negative effect on my business, however it can also be extremely beneficial. Creating the spreadsheet really helped me to see how many different factors actually affect the business i.e. profit margins, daily sales, overheads, re-stocking strategy, marketing, sales erosion.

After running all the different scenarios, I think that organic growth would be the best way forward, using my own money and borrowing from family and friends.

I think I need to focus on just selling all the stock that I have with me right now because it's easier to recover from running out of stock than it is to try and pay back a loan you can't afford. I'll keep running more cashflow scenarios in the mean time to see how they can affect the business.

 

[antropy]

I am currently looking at the Virgin start-up loan for an amount of 20,000.

Should I go ahead and do it?

Depends on a lot of things. Personally, with new investments I prefer to dip my toe in the water first, so perhaps borrow £5k and see how it goes and then borrow more later?