DROPSHIP FINANCING OPTIONS AND TIPS

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Well I have a "good problem" started my drop ship business about 4 months ago slow starting up have a VA helping and boom last night we sold $21,000+ worth of merchandise with a net 16% profit margin after all fees etc.

Problem is, financing to fullfill. These sales were on amazon so there is a 14-20 day lag time in receiving customer payments vs when I need to order from my supplier to fullfill.

I know we can do decent volume problem is scaleable financing my credit is shot and so is my wifes. I have reached out to a few private guys and Kabbage but nothing so far.

How is this hurdle overcome and what viable financing sources are there for this niche that get the business and grow with me?

I am also looking for a mentor so if someone has the tip but does not want to give it away for free I am happy to pay for a consultation or program.

Excited but know I need some guidance here.

Hope people come forth with some info :-)

Thanks so much for your time in reading this

Ed Kowalski
#dropship #financing #options #tips
  • Profile picture of the author lastreporter
    Originally Posted by ekowalski View Post

    Well I have a "good problem" started my drop ship business about 4 months ago slow starting up have a VA helping and boom last night we sold $21,000+ worth of merchandise with a net 16% profit margin after all fees etc.

    Problem is, financing to fullfill. These sales were on amazon so there is a 14-20 day lag time in receiving customer payments vs when I need to order from my supplier to fullfill.

    I know we can do decent volume problem is scaleable financing my credit is shot and so is my wifes. I have reached out to a few private guys and Kabbage but nothing so far.

    How is this hurdle overcome and what viable financing sources are there for this niche that get the business and grow with me?

    I am also looking for a mentor so if someone has the tip but does not want to give it away for free I am happy to pay for a consultation or program.

    Excited but know I need some guidance here.

    Hope people come forth with some info :-)

    Thanks so much for your time in reading this

    Ed Kowalski
    It's a classic problem. I have used Kabbage and my credit cards. The credit problem is a big one, which I wish I had answer to.
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  • Profile picture of the author malia
    You may not be able to secure this type of financing, as this would be an unorthodox application of it, but if you are in the USA you can look into accounts receivable financing (factoring). Problem is, your margins are really slim and what if you get returns/refunds.
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  • Profile picture of the author Joe Stewart
    I drop ship full-time too and had to build my credit completely from scratch with each manufacturer. I started off by accepting credit cards/prepay only and then paying the manufacturer after the transaction had cleared.

    After 3-4 months of sending them steady business, I decided to ask a few of these places for a small credit line (Net-30) so I could prove myself. All of them said yes to $300.00 to start. I paid them on time and in full for 3-4 more months and then asked them to raise it to $1000.00. Once again, no problem.

    Long story short, I now have a Net-30 (with leeway) with most of my suppliers and up to $10,000 in credit, if I need it. I just had to build slowly.

    Unfortunately, it's still difficult to borrow money without collateral or a co-signer, because as a self employed business entity you do not want to show a profit on your taxes for the first few years while you build it. Getting hit with a tax debt could be brutal and can be worked around fairly easily when you're new.

    On the other hand, since you've shown little to no income on your taxes, you can't say that you earned any money on a credit application either. I know. I just went through it two days ago.

    If I'm not mistaken, you have to fulfill that order in a timely manner or you're in violation of Amazon's TOS, right? Do you have anyone that would co-sign for you if you showed them the order?

    At a 16% margin you need to finance $17,640.00, right? Honestly, I don't see how you'll be able to pull this off. Unless you can figure something out quickly I'd let the customer and Amazon know right away. At least you may live to sell another day. I'd definitely get the buyer information, if possible, for future reference.

    I wish I could give you better advice.

    Joe
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    • Profile picture of the author lastreporter
      Originally Posted by Joe Stewart View Post

      I drop ship full-time too and had to build my credit completely from scratch with each manufacturer. I started off by accepting credit cards/prepay only and then paying the manufacturer after the transaction had cleared.

      After 3-4 months of sending them steady business, I decided to ask a few of these places for a small credit line (Net-30) so I could prove myself. All of them said yes to $300.00 to start. I paid them on time and in full for 3-4 more months and then asked them to raise it to $1000.00. Once again, no problem.

      Long story short, I now have a Net-30 (with leeway) with most of my suppliers and up to $10,000 in credit, if I need it. I just had to build slowly.

      Unfortunately, it's still difficult to borrow money without collateral or a co-signer, because as a self employed business entity you do not want to show a profit on your taxes for the first few years while you build it. Getting hit with a tax debt could be brutal and can be worked around fairly easily when you're new.

      On the other hand, since you've shown little to no income on your taxes, you can't say that you earned any money on a credit application either. I know. I just went through it two days ago.

      If I'm not mistaken, you have to fulfill that order in a timely manner or you're in violation of Amazon's TOS, right? Do you have anyone that would co-sign for you if you showed them the order?

      At a 16% margin you need to finance $17,640.00, right? Honestly, I don't see how you'll be able to pull this off. Unless you can figure something out quickly I'd let the customer and Amazon know right away. At least you may live to sell another day. I'd definitely get the buyer information, if possible, for future reference.

      I wish I could give you better advice.

      Joe
      Great insight. I agree with everything you said, especially the 16% margin. That is a risky proposition. I lost some money on a couple of dropshipping deals like that, considering most credit card charge anywhere from 12% to 21% interest.

      I also have a couple of manufactures that give me 30 days net, after I used them for about 8 months.

      Financing as a small business is not an easy thing to do.
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    • Profile picture of the author Lipipaliwal
      Banned
      Originally Posted by Joe Stewart View Post

      I drop ship full-time too and had to build my credit completely from scratch with each manufacturer. I started off by accepting credit cards/prepay only and then paying the manufacturer after the transaction had cleared.

      After 3-4 months of sending them steady business, I decided to ask a few of these places for a small credit line (Net-30) so I could prove myself. All of them said yes to $300.00 to start. I paid them on time and in full for 3-4 more months and then asked them to raise it to $1000.00. Once again, no problem.

      Long story short, I now have a Net-30 (with leeway) with most of my suppliers and up to $10,000 in credit, if I need it. I just had to build slowly.

      Unfortunately, it's still difficult to borrow money without collateral or a co-signer, because as a self employed business entity you do not want to show a profit on your taxes for the first few years while you build it. Getting hit with a tax debt could be brutal and can be worked around fairly easily when you're new.

      On the other hand, since you've shown little to no income on your taxes, you can't say that you earned any money on a credit application either. I know. I just went through it two days ago.

      If I'm not mistaken, you have to fulfill that order in a timely manner or you're in violation of Amazon's TOS, right? Do you have anyone that would co-sign for you if you showed them the order?

      At a 16% margin you need to finance $17,640.00, right? Honestly, I don't see how you'll be able to pull this off. Unless you can figure something out quickly I'd let the customer and Amazon know right away. At least you may live to sell another day. I'd definitely get the buyer information, if possible, for future reference.

      I wish I could give you better advice.

      Joe
      Completely agree with you. I have also fallen into such problems, and I suddenly decreased as well as lost money.
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  • Profile picture of the author kjamesnv
    I have been in this situation MANY MANY times so I can sympathize with your situation. A couple bits of advice.

    * Don't grow too fast. Part of being a smart businessman is growing your business at a controlled pace. You may have to scale back your business for a while until you have the means to obtain enough product and resources to grow. Focus more on higher margin merchandise while you build up and invest your profits back into the business. But if you hurt your reputation or get banned from Amazon that will be a major problem that you need to avoid.

    * Ask for credit with your vendors. This is ESSENTIAL! You will likely have to start with a small credit limit but always pay it on time and ask for regular increases. Once you prove yourself, vendors will be happy to give you credit but it will take some time.

    * If you go to your vendors and explain the situation you are in they may help - especially if you explain that you want to grow a long term relationship with them. However don't give away too much information because some vendors will steal your idea.

    * Find a partner or investor with $$$ or great credit.

    * In the meantime there are some other options but they are expensive. Google "receivable funding" or "receivable factoring". These are companies that will loan you $$$ based on your receivables. Its expensive but your credit will not matter and will help you get through this crunch.

    * if you have assets like a house with equity, a title to a car, or money in a retirement account then you can get a loan against these things. But be careful!
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    • Profile picture of the author Joe Stewart
      I've been doing this for many years as well and though I do agree with most of what you're saying, there are a couple things I'd like to mention.

      Originally Posted by kjamesnv View Post


      * Don't grow too fast. Part of being a smart businessman is growing your business at a controlled pace. You may have to scale back your business for a while until you have the means to obtain enough product and resources to grow. Focus more on higher margin merchandise while you build up and invest your profits back into the business. But if you hurt your reputation or get banned from Amazon that will be a major problem that you need to avoid.
      I agree.

      Originally Posted by kjamesnv View Post

      * Ask for credit with your vendors. This is ESSENTIAL! You will likely have to start with a small credit limit but always pay it on time and ask for regular increases. Once you prove yourself, vendors will be happy to give you credit but it will take some time.
      Once again, I agree.

      Originally Posted by kjamesnv View Post

      * If you go to your vendors and explain the situation you are in they may help - especially if you explain that you want to grow a long term relationship with them. However don't give away too much information because some vendors will steal your idea.
      It can't hurt to try, but I seriously doubt that a legitimate company would offer you over $17,000.00 worth of credit with no history, no collateral and bad credit. I'd be shocked.

      I also agree about giving companies as little information about your customers as possible. I've seen many, many changes over the past decade and a lot of manufacturers and wholesalers are now dealing with end users only or end users and dealers. These companies may drop dealers at some point in the future and cut you out of the equation.

      Originally Posted by kjamesnv View Post

      * Find a partner or investor with $$$ or great credit.
      I disagree with this. Most partners suck! This is especially true if they have the leverage (money). Once you tell them what market you're in and how you're promoting products, they don't need you anymore and you're almost guaranteed to be cut out.

      Even if you sign an agreement stating that they won't, how do you intend to take them to court with little or no money? You might hire an attorney, send them a cease and desist or even get an attorney to take your case on a contingency, but in the end your odds are still not good of winning.

      I've been taken to court before over something similar and I won. No, I wasn't the bad guy. All employees were required to sign an agreement (I can't say too much) under duress or we'd be fired, so I did my own thing.

      I recommend not doing it. You'll likely regret it.

      Originally Posted by kjamesnv View Post

      * In the meantime there are some other options but they are expensive. Google "receivable funding" or "receivable factoring". These are companies that will loan you $$$ based on your receivables. Its expensive but your credit will not matter and will help you get through this crunch.
      I don't have any experience with these companies, but if they're companies that take a percentage of your monthly credit card receivables you'll need to be processing quite a bit each month for them to even consider it.

      Originally Posted by kjamesnv View Post

      * if you have assets like a house with equity, a title to a car, or money in a retirement account then you can get a loan against these things. But be careful!
      Absolutely be careful! I'd never risk a home or valuables on such a low profit margin. As I mentioned before, I really think you should let this go and look at building your business slower.

      My two bits.
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  • Profile picture of the author jodyheath
    Once again, I'm a little late for the party. I couldn't take care of the full $21K, but I have solution for $10K. I have personal experience with a company who was able to fund my internet business in the form of a non-secured personal loan. I had applied for so many loans, just the number of applications alone had probably finished off my fico. I wrote a blog post today on my experience. You have a good shot at getting $10K atleast. I'll be adding more loan sources too as I verify them. But it's nice to be able to recommend someone I have personal experience with. Here are the details on my blog: SouthernProfit Quick Loans & Internet Business Loans: How I Got a Loan for MOBE

    Best of luck to you.
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    Jody Heath, ICU RN & Internet Affiliate
    Skype: SouthernProfit
    Orange County, CA
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  • Why are you financing?

    Debt is the worst thing for any person or business. (No such thing as good debt - no matter how hard you try to argue it.)

    When times get tough, you're bankrupt and out of business. What happens when you're Amazon account is suddenly shut down for violating TOS?

    What if you're sued?

    There goes your business, house, everything.

    Successful businesses start out small, and gradually grow FINANCING their growth by their own sales. It's a great idea to re-invest what you already have.

    It's way too easy to spend other people's money.

    You're a lot more careful when it's your own.

    15 Companies With Zero Debt

    Did you see Apple and Amazon on that list? Yeah - me too. Apple is slated to be the first TRILLION dollar company.

    Can't imagine it'd be that big if they paid a lot in interest. (Which is otherwise known as 'stupid tax.')

    Also - Amazon is on there. They are constantly being attacked for 'not turning a profit' but instead 'investing all of their money into other projects.'

    Can't do that if you're in debt - and AMAZON IS GROWING HUGE! Their new products (for the most part) are doing decent.

    Their Amazon phone was a bust - but it DIDN'T hurt them as they had self-financed. Imagine what would happen to their stock price/valuation is they LOST a lot more money in the debt and interest? They. Would. Be. Screwed.
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    • Profile picture of the author Importexport
      Absolutely right ADE. When I started my first business I promised my wife that I would never borrow money to finance the business.

      We had seen friends lose their homes trying to grow their businesses. I figured that if I couldn't operate the business using the profits to finance it, then I was not making enough margin.

      I am retired now, but that debt-free feeling still feels good. If anyone is looking to start a business, find something that gives you a very high net profit, or get a steady job and build a business in your spare time.
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      • Profile picture of the author SaanviRao
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        Originally Posted by Importexport View Post

        Absolutely right ADE. When I started my first business I promised my wife that I would never borrow money to finance the business.

        We had seen friends lose their homes trying to grow their businesses. I figured that if I couldn't operate the business using the profits to finance it, then I was not making enough margin.

        I am retired now, but that debt-free feeling still feels good. If anyone is looking to start a business, find something that gives you a very high net profit, or get a steady job and build a business in your spare time.
        Thank you so much Importexport for sharing your experience and views. I was really seeking the live examples who has tackled such kind of problems.
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