Wednesday, August 10, 2016

Turnover Tuesdays - Access to Capital During Quarter 4

For those who are not familiar, I started a series a while back called Turnover Tuesdays. Every Tuesday I like to highlight one item that I have resold. This will include profitable and non profitable sales. I hope that there is always something to learn.

If you are a reseller, most likely you need far more capital during quarter 4 than the rest of the year.  Quarter 4 is that magical time when you are selling unicorns and every item you scan seems to be a solid moneymaker.  By the time you send it in prices have increased and you sell for even less than you could have sold for.  It's a good time to be alive.  It's a time when we can choose not to remember what happens when Returnuary rears its ugly head.  Just enjoy the moment.

The worst thing that can happen is running out of money.  You need to have access to adequate capital to take proper advantage of quarter 4.

At the same time you want easy access to capital, short term access since you should be able to pay it back in January or February at the latest, and access to cheap capital.  It doesn't help much if your capital costs you your knees as repayment.  How are you going to lift the boxes?  

There are different ways to access capital and I'm sure there will be a bunch that I will miss but here are the main ones I know of.

Credit Cards

You can use credit cards for access to capital. There are no additional forms to fill out so it is a very simple alternative.

I'm pretty sure everyone reading this knows that putting balances on a credit card is not a good idea in general.  The APYs on credit cards tend to be one of the worst ways to borrow money.  

I am primarily referring to 0% APY credit cards (think Chase Slate/Discover it, etc.) and 0% balance transfer credit cards.  These offers are limited to a specific amount of time.  For example, on the Chase Slate, it is 0% APY for up to 15 months for purchases on the card and 0% on balance transfers for the first 60 days so be aware of the limits for each card you use.

You may not incur any interest when doing this but it will affect your credit since your credit balances are increasing.  

Business Loans/Personal Loans/Lines of Credit

These are more complicated in that you will need to apply for a loan/line of credit from your bank of choice.

A few things to keep in mind besides the actual rate.  If you are looking for a short term loan, make sure there is no early payment penalty (or that the penalty is not significant) and that you are only paying interest on the capital that you use, not the entire loan or line of credit.

Loans can affect your personal credit as well so be aware of that.  These are usually unsecured loans (no collateral tied to the loan in the even of default as opposed to a home equity loan) so you will likely pay higher interest for that.

You can try to use Lendio to see what types of loans are available for you.  If you just started reselling this year you may not qualify for many loans but it doesn't hurt to find out (soft pull).

Family and Friends

Highly controversial but this can be a good way to access capital.  You may want to work out a profit sharing agreement instead of interest but that is a personal decision.  Obviously, this will not affect your credit score.

You can run into problems on items that don't sell well.  I bought a lot of Apple Watches last year during quarter 4 and prices crashed.  I waited months before I sold them, if that happens with a family member's money and they are expecting it in january or February and have to wait until May that can be a problem.

Peer to Peer Lending

Websites like Lending Club and Lending Tree offer loans from non bank sources. I've only ever been on the investing side so I can't say much about them.

401(k) Borrowing

I mentioned last week that one of the pros to a 401(k) contribution is that you can borrow money short term from the 401(k).  That can be a powerful tool for a reseller but it is limited in terms of frequency of borrowing.  Please speak to your plan administrator before considering this option.  

You will need to pay back with interest, but the interest goes back into the 401(k) so this can be a very cheap way to access capital.

Loan Management Account

A Loan Management Account (LMA) is a type of secured account that uses your investments as collateral to the loan.  It can be set up quickly and easily and usually you just write a check to yourself from the account and pay interest on the money you are currently borrowing.

Check the rates available to you but this can be a way to cheaply borrow large sums of money without much hassle.

It's time to start thinking about quarter 4 and part of that is making sure you are well capitalized to take advantage of all the opportunities.  Now is the time to start opening accounts if necessary so that everything is in place once quarter comes along.  It's really not that far away!

What other vehicles are you using for access to capital for quarter 4?