You’ve got the ideas and you’ve got the drive to start your own eCommerce business, but what will you do about all those capital needs? Many new entrepreneurs struggle with financing their businesses. While some are lucky enough to have friends or family members who can serve as initial investors, not everyone is that fortunate. This makes it important for anyone looking to launch an e-commerce venture to find out beforehand exactly what type of capital they need and where they might go to get it.
Fortunately, there are many different eCommerce financing options. Depending on your level of risk tolerance and personal circumstances, there is likely one that best suits you. In this blog post, we take a look at some potential options for financing your eCommerce business.
Crowdfunding platforms are a relatively new way to raise money, but they have become very popular in recent years. They allow entrepreneurs to get in touch with large numbers of potential investors through a single channel. You can use these platforms to raise funds from friends, family members, and complete strangers. This is a great option for entrepreneurs who want to keep their ownership of the business low and don’t want to give up too much equity. However, the amounts you can raise through crowdfunding are usually not enough to finance a business from the get-go.
If you are looking to finance a one-time purchase or need a short-term loan for operational costs, you might consider an operating loan. These types of loans come with repayment terms that are often flexible and easy to understand. Best of all, they are sometimes provided by your regular bank. Unlike a traditional loan, however, an operating loan is meant to be repaid in a relatively short period of time (e.g. six months). It may also come with a higher interest rate than a standard business loan.
E-commerce Loan from a Bank
If you’re looking for a long-term loan that will help to finance your eCommerce business, a standard business loan might work best. Depending on the size of the loan and the strength of your business plan, banks might be willing to lend you money for your eCommerce venture. The rates for these loans might be lower than a short-term operating loan or a personal loan, but banks may also want you to pledge a significant amount of your business’s equity as collateral. This makes it important to choose the right bank and have a sound business plan before approaching them. You can also consider applying for an SBA loan, which is a government-backed loan program.
Equity Investment From an Angel Investor or VC
The best way to fund your eCommerce business is with a combination of debt (loans) and equity. This helps reduce overall risk for your business partners. If you can find an investor who is willing to take a significant share of ownership in your company, this can help you to expand more quickly.
You can also use debt to finance your business, however, and not give away a larger piece of your company. Before you approach an angel investor or venture capitalist, it is important to do your homework. You will want to make sure that you are pitching your business in the right way, and that you have a strong team and solid business plan in place.
Loan From a Merchant Cash Advance Provider
If you have high-profit margins and are looking for a quick cash injection, a merchant cash advance might make sense. Although these types of loans are often associated with gambling and payday loan businesses, they can also be used to finance eCommerce businesses.
Merchant cash advance providers might offer you a large amount of cash in exchange for a percentage of your future sales. They may also require you to make regular payments against the principal amount that they lent you. However, unlike other types of financing, they don’t require a collateralized asset. Some features that you might want to look for when choosing a merchant cash advance provider include low-interest rates, a short length of time for repayment, and flexibility when it comes to repayment schedules.
Launching and running an eCommerce business can be challenging. By investing some time upfront to learn about the different types of financing available, you can be sure you are making the best decision for your business. It is important to remember that even if you can’t get a loan from a bank or a merchant cash advance provider, that doesn’t mean you can’t start your eCommerce business. You can always try crowdfunding, asking friends and family members for financial contributions. The important thing is to start now and take action toward making your business dream a reality.