Should You Apply For A Second Business Loan?

Sometimes you need an extra boost when managing an ecommerce business. That first loan got you started, now you need to grow or keep up with day-to-day expenses. We’ll discuss the best options for you and your company.

Maintaining and growing an ecommerce business isn’t easy. It takes a lot of hard work and clever money-managing skills. Loans can make or break a business, but what about two or more loans? If you play your cards right, it can be a beneficial move for your developing business. It’s important to research lenders and find the type of loan that fits your current purpose. So, take your time and find something that will give you breathing room, not take it away.

Can You Apply For More Than One Loan?

Yes. There is nothing stopping you from applying for a second loan or more if needed. The challenging aspect is getting approved. It depends on your business history, credit score, and debts owed to the first loan. Many traditional banks won’t loan you the money due to their strict guidelines, but you may have some luck with alternative lenders. With alternative lenders, you’ll have to prove that you have the cashflow available to pay the interest on the second loan, so have your ducks in a row before approaching them.

When Should You Apply For A Second Loan?

You may want a second loan for several reasons. The first being that the second loan is for something else entirely. If you received the first loan for startup costs, then you may want a second loan to cover inventory or simply sustain your business. You might want to apply for a second business loan if you want to expand. There is nothing wrong with this goal, so long as you’re confident that you can make payments on both loans, including any unforeseen costs in the future. With that in mind, let’s explore a few of the best loans for you to consider.

Business Lines Of Credit

Instead of receiving a lump sum that takes years to pay off, you can get a line of credit. You can draw from this account whenever you need the extra cash. Credit limits and interest rates range anywhere from low to high. Sometimes the drawing period is limited to a certain amount of time, others are available as long as you need it. Lines of credit can be long-term solutions, especially for businesses that want revolving credits. As you pay off the loan, more money becomes available to you.

Pros

• Only charged interest on the portion of money you use from the loan
• Lower interest rates
• Easy access to cash

Cons

• Long application process
• Low limits
• Some have a required minimum

Merchant Cash Advances

Merchant cash advances are exactly what they sound like—they’re cash advances. You obtain a lump sum of money to go towards your ecommerce business, and you pay off that sum with your potential sales. A percentage is taken out of each credit and debit card transaction to pay this debt. It’s easier to get approved than most loans, due to their lenient requirements. If you have a reasonable credit score and have been in business for at least three months, you can be approved.

Pros

• You get to control what you use the cash advance for
• It’s easier to get approved than traditional business loans
• The more sales you make, the faster the advance is paid off

Cons

• Credit card processors are mandatory
• The lenders can pull money from your business account whether you’ve made sales that week/month or not
• It can take years to pay off
• It’s not government regulated

SBA Loans

SBA loans are designed for ecommerce businesses that can’t get funding elsewhere. Often, they have decent interest rates and reasonable repayment terms. Some have access to mentorship, so if you’re struggling to manage your loans, reach out for help. Down side? They usually have a say in how you’re spending the business loan. This means that you have less control over your business and its growth.

Pros

• Longer repayment terms
• Set maximum interest rates
• Wide range of loan amounts

Cons

• Long approval times
• Possible down payment
• The rates aren’t the best
• It’s a “last resort”

Which Loan Is Right For You?

You’ll need to consider your budget and business goals to determine which business loan is right for you. Finding one that has lower interest is a good idea, especially once you’re making two or more monthly loan payments. One lump sum may not be a good idea if you’re going to be tight on cashflow, or have multiple risks involved with taking on that extra loan. Try to find a loan that will accommodate your unique needs. A business line of credit is a smart way to keep up with payments. You can have it extended and the interest rates are often on the lower side. Something adaptable and flexible is a smart decision.