Despite all the negatives surrounding payday loan, it is proven to be one of the methods that may help you fund your online business startup.
What is a payday loan?
Payday loan or payday advance shares a similar concept to cash advances – a short term loan granted to borrower that should be repaid in full, plus a relatively high interest, when the borrower receive his/her next paycheck.
Typically a payday loan amount ranges between $100 and $500 and is due in less than one month period.
The use of payday loans
Payday loan is one of the strong candidates to finance your small online startup that requires less than $500 in investment fund.
The main benefit of payday loans, especially for those that are offered online, is fast turnaround time, easy to apply and low-credit-score-friendly. The main drawback, of course, is the high interest rate, typically around 400% APR. One example of online payday loans provider is jaguar payday loans.
In my opinion, payday loan is best fit for a part-time entrepreneur, full-time employee with poor credit score (due to a previous bankruptcy, for example) entering the online business market, as Internet business are typically low in investment.
How to start an online business with payday loan: a possible scenario
The following is the possible scenario of one of legitimate and lucrative online business – website flipping business.
What is website flipping? In simple, Website flipping is like real estate flipping – you buy a website, hold it or ‘renovate’ it, and then sell it at higher price at online marketplace.
Suppose you took a $100 payday loan – for two week period with 400% APR, you have to pay back approximately at $115.
Suppose you interested in a web directory that is priced $100. You buy it, hold it for about a week, and put it up for sale. You can end up selling the website for $125 to $150.
So, your net profit is $10 to $35 – a 10% to 35% profit margin – a good return on investment in 2 week period.
Of course, this scenario assumes you have an eye to spot great web properties at below fair market price tag. This scenario doesn’t guarantee anything, but in my case, it works – I’ve done this before.
Word of caution
The number one word of caution on taking payday loan is: do not take payday loan to pay for your living expense. The high interest rate will choke you, and left you in bigger debt than before.
People hates payday loan because it is often targeted to low income people with an low financial knowledge.
You need to understand the principle of good debt and bad debt in taking payday loan. Any loans are always about good debts and bad debts – good debts make you money, while bad debts lose you money. You can use payday loan for either purposes – plan wisely and well.
I recommend you to seek proper information, NOT from the payday loan provider, but to the better source of information – financial forums, wikis, and experts that are more than happy to give you advices you can find on the Internet.
Learn as much as you can about the loan, and learn NOT to stumble on the caveats.