Starting an ecommerce business is an exciting venture. However, succeeding with your ecommerce business requires meticulous planning and sufficient funds.
You may have a great business idea but are yet to find the perfect funding option for your business.
In this article, we will look at all you need to know about ecommerce financing including various ecommerce financing options to consider.
Ecommerce financing are the funding options that provide merchants with the money they need to start or grow their existing ecommerce business.
With these funding options, they can increase their inventory, fund marketing campaigns, and switch to better technology, amongst other goals.
Just like any business, your ecommerce business cannot thrive without finances. You need finances to cover both fixed and variable costs that come with running an ecommerce business. These can include expenses like website design fees, advertising and marketing, hiring employees, and so on.
Ecommerce financing is a critical part of your business model and as an entrepreneur, it is important to find the most suitable funding option for your business.
Choosing the right financing option for your ecommerce business can greatly impact its success. Here are some factors to keep in mind when choosing a funding option for your ecommerce business:
The process of raising finances for your ecommerce business can be a lengthy and sometimes tedious process that requires proper research and planning. You may want to work with financial advisors to help you choose the best financing option for your ecommerce business.
Several sources of funding come with their pros and cons. Here are some of the most common ecommerce financing options you can choose from:
Bank loans are a common source of funding for ecommerce businesses. Banks and other financial institutions offer different types of loans which require repayment within a timeframe. Most bank loans have a low interest rate which is good news for a growing ecommerce business.
However, the application process for bank loans can be rigid. You will need to follow strict guidelines before you can get approval.
Bank loans may struggle with bank loans as most banks will require a track record of sales and cash flow.
So, banks will most likely give bank loans to already established businesses over new ones.
Before applying for a bank loan, you want to do your due diligence, ensuring that you have all you need to qualify for a bank loan.
Angel investors are people who invest their funds into startups in exchange for equity. These investors not only provide funding but may sometimes provide mentorship to help the business thrive.
If you’re at the early stage of your business, this is a good funding option. However, you will have to give up some control and ownership in your ecommerce business.
One great financing option for ecommerce sellers is Lines of Credit. You can open up a line of credit and get cash with no limits to what you can use the cash for.
Lines of Credit work similarly to credit cards. So, you can use funds as the need arises and repay approved funds that were used. In other words, you only pay interest on the portion of the funds used.
Also, once you are approved for a line of credit, you get limits of funds which could be anywhere from a few thousand dollars to even up to a million dollars.
However, it can be difficult to increase your credit limit. You also need to meet strict requirements from banks to qualify.
Merchant Cash Advance is a viable funding option if your business uses debit or credit card payment systems. With Merchant Cash Advance, you get cash in advance in exchange for your company's debit or credit card sales. So, the MCA lender will take out fees and interest from your daily or weekly debit or credit card sales until the total amount borrowed is repaid.
Merchant Cash Advance is a short-term financing option that can get you between $5000 - $500,000.
The approval process is not as stringent as bank loans and repayment methods are proportional to your revenue.
Crowdfunding has become a popular business finishing option, especially among startups and businesses in their early stages. Crowdfunding involves collecting funds through a fundraising page on a crowdfunding site.
As a business owner, you can advertise your cause to a large audience of investors. Crowdfunding is very flexible as you can decide how to use the money you receive. Investors will only hold minimal shares and won't be able to influence your business. However, you may be faced with large competition among businesses also seeking crowdfunding.
Grants are also another source of funding you can consider for your ecommerce business. They are funds given to businesses by the government or non-profit organizations. Unlike most sources of finishing, grants do not need to be repaid. You also don’t have to give up any part of your business.
However, grants often come with very specific criteria which may be difficult to meet. It is also highly competitive.
Invoice financing is a source of funding that gives you access to working capital. So, lenders of invoice financing will give you funds based on your business account receivables.
Invoice financing can help you get your hands on cash as soon as possible. Lenders may offer an advance of as much as 80-90% of outstanding receivables, enabling business owners to meet short-term needs.
However, to apply for invoice financing, you need to have a reliable payment history. Some lenders may require that you put up collateral.
Bank overdrafts are a great funding option for short-term projects. However, before banks can approve an overdraft, you must have a strong history with the bank.
Amounts available can differ from business to business as banks will typically examine your turnover to determine the funds you can access. Also, you won’t be able to access large sums of money to expand or invest in new product lines.
Getting funds for your ecommerce business can take a lot of work. However, having a few things on ground can help you navigate the process quickly. Here are some tips to help you successfully get funds for your ecommerce business:
Funding is a crucial step to securing the future of your ecommerce business. Also, the type of funding you choose can make or break your business. You want to research various funding options and choose which is best for your business. Consider your financial needs, the financial status of your company, interest rates, and repayment terms, amongst other factors.