An eBay business may well be one of the most attractive ways to generate additional income in the gig economy. So, many want to know how to start an eBay business. And where to get the financing.
eBay business advantages
eBay is a great way to get started in retail. There’s little cost up-front and little risk. There’s no store to rent and no need to pay employees or stockpile a massive inventory of goods. Instead, you get a national platform with a proven sales history.
What makes eBay appealing is that its goals and yours are aligned. eBay makes more money with each sale. It benefits when you succeed.
eBay must be doing something right. Unlike a number of businesses backed by Wall Street billions, eBay has both sales and profits. Its model works. In the second quarter of 2019 eBay sellers sold goods worth $22.6 billion. The company had $402 million in profits and 182 million buyers.
So how do you get in on the action? As with all businesses, selling online is not a sure thing. The good news is that you can test the system with little risk.
How eBay works
eBay is a virtual garage sale or flea market. As a seller, you show up, get a booth, display your goods, and hopefully make sales. However, the eBay model has some distinctions.
First, eBay is online. You can place an ad from anywhere and make a sale nationwide.
Second, eBay functions 24 hours a day, seven days a week. Your booth is always open.
Third, eBay is not like companies that have armies of sellers marketing their products. With eBay, you’re responsible for finding your own inventory.
Fourth, unlike a yard sale, if you find a buyer you’ll need to ship your goods.
Fifth, unlike a flea market, eBay guarantees most of the goods listed for sale. The “eBay Money Back Guarantee,” says the company, “means you’re protected if the item you ordered didn’t arrive, is faulty or damaged, or doesn’t match the listing. You’ll get your money back.”
How to start an eBay business
For details and specifics spend time on the site, read the various help pages, do some buying and selling, and then open your own business account.
Before selling goods, it’s best to be a buyer. To see how the system works and to garner a few positive ratings from buyers. Just purchase a few small items and see what happens. Or, better, purchase an item you want to sell later. And pay attention to the following:
- Payment terms (PayPal, credit card, etc.)
- Selling method (auction, reserve auction, fixed price)
- Shipping method, time and cost
- Packaging
- Paperwork included in the package
- Seller rating
Given what you paid for the item, could you sell it at a profit?
Related: Personal Loan or Personal Line of Credit? What’s Right for You?
First sales
The great thing about eBay is that it democratizes the marketplace. Everyone gets a chance to sell. You don’t need $12 million to get started.
In fact, you need virtually nothing to begin. Just find a household item that you don’t want and offer it for sale. You’re in business.
The catch, however, is that eBay does not allow all sales. It has restrictions and prohibitions so you want to check its list of banned items. Also, eBay has a large number of useful guides that explain the system in detail.
Start small
There is a difference on eBay between individual accounts and business accounts. In general terms, an individual can sell household items while a business account can be used to sell your goods and resell goods from wholesalers.
The great beauty of eBay is that you can start small, try different items, and grow at your own pace. In time you’ll want to have multiple items available for sale and that raises a money question: How do you pay for inventory?
As your business grows you want inventory. You want to ship inventory immediately when orders come in. Why? Two reasons.
- You want to ship orders immediately to keep up with delivery standard-bearers such as Amazon and WalMart
- You want to make buyers happy. That’s because eBay buyers get to post feedback. Did you deliver what you promised?
Was the description fair? Did the item arrive quickly? On eBay, positive feedback is a key to marketplace success.
One approach to the inventory issue is to buy multiple units and have them on hand in boxes with most paperwork. When an order comes in, add an invoice, seal the box, add a label, and off it goes.
This is a handy system for standard items that you make or re-sell, but it raises the issue of cost. How do you pay for inventory which has yet to be sold? How do you cover shipping fees and other expenses to stay in business?
Related: Personal Business Loans (How to Choose and Apply)
Cash
The best way to fund a new eBay business is with cash on hand. That’s the usual approach when starting out. But, if the business is successful, the need for inventory can grow significantly. Not everyone has the dollars needed to fund a growing business.
Credit cards
No surprise here. Many start-up eBay businesses get their funding from credit cards. Credit cards can be a good choice for making purchases but a poor choice for financing those purchases. Credit cards are fast and convenient, but their interest rates can be steep, often above 18%.
And using more than 30% of your available credit can cause your credit score to drop. Which can make future borrowing more expensive.
Personal loan
A small personal loan is often a good option for eBay business start-ups.
A personal loan is unsecured financing. The loan is not secured by your inventory, car or home.
Good credit scores are crucial to get low rates for personal loans. For this reason, you should look at your credit report to find if there are any factual errors or out-of-date items – they can significantly lower your credit. For a free copy of your credit report go to AnnualCreditReport.com.
Personal loans range from $1,000 to $100,000 and with terms of up to ten years. But are most commonly available in amounts of $1,000 to $35,000 and with terms from one to five years.
Here are the payments for a $5,000 personal loan at various interest rates and terms.
Now you know how to start an eBay business and finance it. As your business grows, your financing should as well. Consider business lines of credit for inventory, to tide you over during a slowdown, and to perhaps cover the salaries of your future underlings when your business takes off.
