DROPSHIP FINANCING OPTIONS AND TIPS

10 years ago

Originally Posted by ekowalski

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.

Thanks

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malia

10 years ago

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.

Thanks

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Joe Stewart

10 years ago

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

Thanks
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lastreporter

10 years ago

Originally Posted by 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

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.

Thanks

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Lipipaliwal

Banned 9 years ago

Originally Posted by 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

Completely agree with you. I have also fallen into such problems, and I suddenly decreased as well as lost money.

Thanks

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kjamesnv

10 years ago

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!

Thanks
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Joe Stewart

10 years ago

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.