Learning how to fund your eCommerce business doesn’t have to take days of research. Read this quick guide to get started!
As a growing eCommerce business owner, you face many challenges in keeping the momentum going. From inventory to technology to hiring employees, you want to invest in your business and take it to the next level. On the other hand, you have to keep a keen eye on your finances and cash flow. So, as an online SMB owner, you may be asking yourself, “How do I secure funding to grow my online business in 2017?” Fortunately, learning how to fund your eCommerce business isn’t a difficult task.
Securing funding, on the other hand, can be a daunting task. But don’t worry, in this post, we will go over the different ways you can fund your eCommerce business.
Businesses can either get funding in the form of debt or equity. Debt is money you owe to a lender, and you also pay interest on the principal. Equity financing is giving away shares of your company in exchange for money. Equity is a good option if you don’t mind bringing in investors and are looking to raise a significant amount of money.
Here’s the good news, since your eCommerce business is booming, people will want to invest in your business. You have proven that your concept works and there is a market for your product.
And it gets better: As the economy keeps growing, businesses and banks are more willing to invest. There has been a 10% increase in SBA Business Loan Approval Activity in 2016 YTD as compared to 2015. In fact, new business loans have been at its highest level since the Great Recession. While interest rates are still relatively low, it is widely expected to increase in 2017. You should try to secure funding as soon as possible.
Before you start contacting banks and other financial institutions, you should keep some information about your business and finances handy. You will need a concrete business plan, projections for the next few years, your plans to use the money, tax records, and financial statements from the years you’ve been in business.
Traditional Funding Methods:
- Friends and Family – This could be a top choice if you’re not looking to borrow a significant sum. You probably would pay a low or no interest and skip the formal approval processes of the other methods.
- Bank loan – Banks require some collateral, but if you have a track record and defined plans for growth, your chances for approval are good.
- SBA Business Loan – You have to jump through plenty of hoops but if you’re successful you can get loans ranging from $50,000 to $1 million.
- Venture Capital – This is a great option for a rapidly growing business that is looking to raise more than a million dollars. Venture Capitalists (VCs) have a higher appetite for risk. They don’t usually look for short-term profit, but they deeply care about growth. The downside is that you will have to give up some control of your business.
Alternative Funding Methods:
- Peer-to-Peer Lending – Companies like LendingClub and Prosper allow individuals to make loans to other individuals. You may be able to secure a loan of up to $300,000 from LendingClub. You can also apply for a line of credit.
- Crowdfunding – This is a popular way for existing eCommerce businesses with a passionate following to develop new products and raise money. If you run a successful campaign, you raise funds by giving supporters “perks.” Certain platforms also allow you to do “equity crowdfunding” where investors are allowed to invest as little as $1,000 in your business.
- Online Loans – Companies like Kabbage and PayPal offer loans to established small businesses. Through Kabbage you can link your financial information and get a decision almost instantly. They transfer the money quickly and provide lines of credit up to $100,000. PayPal requires you to have processed at least $20,000 in PayPal sales within the last 12 months. PayPal does not require a credit check.
For a more comprehensive list of unconventional funding sources, check out this post of the Top 25 Alternative Funding Sources for Small Businesses by Fundera. It’s a great resource for learning to fund your eCommerce business.
As a note of caution, you should only borrow or raise money if you really need it. If you can grow your business without the need for external financing or if you’re not sure what you would do with the money, then you’re better off growing organically.