Is it Smart to Lend Money to an Online Freelancer?

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Online retail enterprises have grown in leaps and bounds during the past few years. Most experts predict that their influence over the marketplace as a whole will continue to grow. This is why many individuals are keen to become involved with such ventures. However, is it wise to lend money to someone who claims to possess a "sure-fire" business model destined for success? Is this a prudent investment or should you allocate your funds towards more traditional opportunities? Let us take a look at how you can discern a worthwhile investment from one which is best to avoid at all costs.

All About Their Game Plan

Much like in the real world, an online entrepreneur will need to have a firm grasp around what it is that he or she wishes to accomplish. Those without a basis sense of direction are bound to flounder and the last thing you want is to go down with a sinking (digital) ship. This is why it is important to ask these relevant questions:

  • How many other lenders have already agreed to become involved?
  • What is the current state of market capitalisation of the online firm?
  • What are the predictions for short- and long-term growth?
  • How much liquidity do they possess?
  • Are they physically producing products or are such concepts confined solely to future desires?

In other words, there is a massive difference between a far-off dream and a tangible reality. Assuming that the individual has met all of the criteria mentioned above, the next step is to determine how much you feel comfortable lending without placing yourself in a financial bind. As a general rule of thumb, it is best to allocate no more than ten per cent of your available capital towards such a proposal. 

What About the Infrastructure?

It is just as important to take a look at how their online business will operate. Are they planning to "go it alone" or have they chosen to work with respectable enterprise ecommerce platforms that are able to provide the necessary digital edge? This is critical, as even the most well-conceived visions can fall upon deaf ears if the proper digital tools have not been put into place from the beginning. Never forget that you are not only investing in a concept. You are investing in the ability of a venture to grow with a changing and (sometimes unpredictable) economy. This is why a sound e-commerce solution needs to be present.

Any type of investment requires a certain amount of prudence and this same principle is just as relevant when referring to the online retail sector. Having said this, let us not forget that major firms such as Amazon and eBay all began as mere concepts. This is why there is a very real chance to turn a sizeable profit if you know what to look for as well as when to walk away. Either way, the digital future looks exceedingly bright.

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