Mon, 13 May 2019
Ricardo Pero launched a business that lends money to e-commerce companies to fund their inventories.
Most business owners will buy inventory with their own money, and with all of their capital tied up, they have nothing left to do but stress out.
But there is another way of doing things which is use other people’s money to fund inventory, so you still have your own money to invest into growing your business (advertising, product diversification, systems, people, etc.)
Tune in for a great conversation on the challenges people run into while funding their own inventory and how SellersFunding can help you do things differently.
[6:12] Ryan talks about an idea he had a few years ago and introduces the man who beat him to the punch! Ricardo Pero, Founder and CEO of Sellers Funding.
After working in investment banking for years, Ricardo saw how inefficient traditional credit models were at accurately assessing e-commerce business risk. He saw an opportunity.
[8:14] Traditional business owners usually rely on their own resources (bootstrapping), and tend to be overly conservative in the way they borrow. They don’t have an ROI mindset.
In a lot of cases if you’re going to spend X$ on inventory, it’s X$ you can’t put into anything else. However if you fund it, you will pay interest but because you get the same amount of money when you sell the product your return will be much higher.
A tool for planning cash flow [13:29] The SellersFunding sales prediction model looks into cyclicality and sales performance and provides you with this information so you can make more informed decisions.
You will know exactly when you need to order more inventory, how much of it you need and how much it’ll cost you.
[14:14] Ricardo talks about why he chose to divert his career from investment management to focus on this new enterprise. The main question was always how can I best apply my knowledge of investment management?
E-commerce has the largest dataset to work with in terms of investment evaluation and, as a sector should outperform brick and mortar by a wide margin.
Once he had chosen the e-commerce industry, he had 2 options for building this company he wanted:
1. Partnering with sellers and providing support for their working capital needs
2. Make direct investment into brands
Ricardo decided to move to the credit side because the client pool is much wider.
The cash flow gap problem [19:00] is in essence the problem that SellersFunding solves:
Between the purchase order and the moment the product is available for sale is this gap which — if your products are sourced from abroad — can take up to 100 days for that first sale to happen.
In order to bridge this gap, SellersFunding offers an interest only grace period of about 60 days from the moment the order has been placed. In this manner, the business retains control over as much money as possible and the loan payment can theoretically come out of the profit margin.
Braingasm [21:54] e-commerce businesses are essentially recession-proof.
Qualifying for the capital [22:10] is a slightly different process. You will be evaluated on the traditional business metrics, cash flow metrics, structure costs and inventory levels but — and here’s where it gets interesting — also on Amazon business reviews, customer feedback and account health.
Those metrics are actually more important to SellersFunding because they are a better indicator of your commitment to your customer and ultimately your future performance.
Getting the capital [25:10] SBA loans take many months before funding is received, Amazon lending requires a year’s track record, how does SellersFunding compare?
SellersFunding only needs 6 months of track record. The application form takes about 5 minutes and is then run into the pre-qualification model of 3 million sellers. Depending on the length of your track record, running the model takes a few minutes to an hour. Within the day you will get your answer and within 48 hours, your money.
[28:00] Ryan asks Ricardo where do the funds come from, what his biggest loan cheque to date has been and what the terms look like for a loan.
The biggest sellers get about a year to pay off the loan and the average interest only period is about 60 days, the amortization schedule is matched to the marketplace payment cycle.
Theoretically, you could manage to pay off your loan faster than the term and not pay any more interest, and once you’ve paid off 50% of the outstanding transaction, you’re eligible to apply for a new loan.
[34:54] There is no one specialised in e-commerce! SellersFunding wants to become the leader in e-commerce lending and is looking to partner with clients for the long run.
[39:44] Ryan climbs on his soap box and reminds all physical products entrepreneurs to break out of their cash restraints and go fund their inventories with other people’s money: keep your own money to invest and build up your business!
[44:52] Ryan thanks Ricardo for coming on the podcast, recaps some key elements to remember and encourages listeners looking for funding to follow this link: www.capitalism.com/sellersfunding.
Mentioned in this episode
Direct download: TOP_5_13.mp3
Category:Business -- posted at: 5:00am EDT