E-commerce business owners face various hindrances in order to maintain the momentum of their business. From technology to inventory to hiring employees, there is always some or the other requirement of finances to take the online business to the next level. For a business to run efficiently not only proper management but also control over finances and cash flow is mandatory.
Many businesses have the requirement of secure funding in order to grow their eCommerce business, so let us see and go through a few tips in order to fund your eCommerce business and help it grow globally.
Two different types of funding
Businesses can get funding either in the form of equity or debt.
Debt: You take a loan from a lender and you pay back interest on the principal amount.
Equity: You give away shares of your company in exchange for money. It’s a good option if you are okay to share your profit margins with investors. It easily raises a significant amount of money.
If there is an extensive market for your product then there are people and companies that would be interested to invest in your business.
Before contacting any financial institutions and banks make sure that you have:
- A concrete business plans
- Forecasting of your project for the next few years
- Plans to utilize the money you are borrowing
- Your business tax records
- Financial statements of your business
Keep the above records handy in order to opt for the below traditional and alternative funding methods
Traditional Funding methods
Friends and Family: This is one of the best methods if you don’t have a high financial requirement. You don’t have to face the glitches of the formal approval process and you can borrow at a very low or no interest rate.
Bank loan: Heavy finance requirement cannot be fulfilled through friends and family, at that time consider a bank loan. Banks ask for collateral and chances of approval are more if you have a good business plan and a decent income.
SBA Business loan: If you are successful in getting small business administration (SBA) loan, then your loan amount may range from $50,000 to $1 million. The guidelines of SBA loans are similar to those of bank loans but you have to jump through plenty of hoops.
Venture Capital: If your requirement for money is more than $1 million + then this the preferable option for you. Venture capitalists are risk takers and if they find that your business has a high-profit scope and is fast growing then they are willing to invest in your business when banks deny doing so. Since they have invested in your business they care for your business. But the only downside is while making business decisions you have to give some control to these investors.
Alternative Funding methods
Crowdfunding: A popular method to raise money and develop new products. In this concept a group of supporters and customers can invest in your business may be starting from $1000. In this large group of individuals give modest contributions in order to fund your business. You can raise your finances through this crowdfunding concept while providing some interest to the group. There are certain platforms that allow you to do equity crowdfunding.
Peer-to-Peer Lending: There are many companies in the market these days that allows the investor or individuals to lend loans to other individuals and companies. You can apply for loans or line of credits in these marketplaces. The best example is the Prosper and Lending clubs.
Online Loans: Companies like PayPal and Kabbage offer loans to established small businesses. The decisions for providing these types of loans are fast depending on your relationship with their company and your credit check. In PayPal even, the credit check is not required for instant money requirement.
These are some of the best options listed here in order to get funding for your eCommerce business. Try the route (traditional or alternate) that works best for your business.
Note of Caution: If you can manage your business without the external finances then it is the best option to grow organically without the burden of paying back.