Running a growing ecommerce business has its challenges. You need new inventory, technology, employees, or suppliers to keep the momentum going. Investing in your business will take it to the next level, but you also have to keep an eye on your budget and cash flow. As an ecommerce business owner, you must maintain that delicate balance. But, how? The answer may be securing funding from an outside source.
Securing funding can seem daunting. To help, we’ve put together seven options to fund your ecommerce business.
Two Different Types of Funding
Generally speaking, you can get funding in two forms: debt or equity. It is considered debt when someone (or some entity) lends you money that you pay back, usually with interest. Equity financing means that you give away shares of your company in exchange for money up front. This type of funding is a good option if you need a large sum of money and are open to bringing in outside investors.
While you may be hesitant about finding outside investors, you may be surprised. As long as your ecommerce store is doing well and you’ve proven there is a market for the products you sell, investors will be interested.
Methods for Funding Your Online Business
There are several things you will need before you start putting feelers out for funding. You need the following:
- A solid ecommerce business plan
- Sales forecasting for the next few years
- Tax returns and other financial statements
- A good explanation for how the funding will be used
Keep these items handy as you consider the following traditional and alternative funding methods.
Traditional Business Funding Methods
- Ask Friends or Family – This can be a great option when you don’t need a large amount of money. Try borrowing from a friend or relative since there isn’t a formal approval process and no interest (or a small amount) to pay back.
- Bank Loan – If you need more funding than your friends or family can provide, consider a bank loan. They typically need collateral, but if you have a decent income and a solid business plan, chances for approval are good.
- SBA Business Loan – The Small Business Administration (SBA) works with lenders who provide funding. These types of loans can range from $50,000 to $1 million, but they require you to jump through lots of hoops.
- Venture Capital – This type of funding is great if you need a lot of money ($1 million+) and have a fast-growing business. Venture capitalists are risk-takers and willing to lend when banks don’t. Since they are invested in your business, they care about the growth of your business. The only downside is you have to be willing to give up some control when it comes to making business decisions.
Alternative Business Funding Methods
- Crowdfunding – This method of funding is very popular for ecommerce businesses. You must have a passionate group of customers to raise money through crowdfunding. Ecommerce businesses have raised a lot of money by offering supporters perks not available to those who didn’t contribute. Additionally, some crowdfunding platforms allow “equity crowdfunding” where people can invest as little as $1,000 in your business.
- Marketplace Lending Platforms – Companies like Prosper offer people the option to either invest or borrow money. It is essentially peer-to-peer lending. With this type of funding, you may be able to qualify for loans or lines of credit.
- Online Loans – Companies like PayPal and Kabbage offer loans to small businesses who’ve established a relationship with their companies. The decisions for these types of loans are made fast and you have nearly immediate access to the funds. They also rely on your relationship with their company, so they may not even require a credit check.
- Receivables Financing – Some businesses need capital for growth, but don’t want to bear the additional liability that debt creates. Payability is a company that advances sales proceeds early to sellers, either in the form of instant payouts or capital advances. They work with sellers on most major ecommerce platforms, including Amazon, Walmart, Shopify and Tophatter. It only takes minutes to apply and no credit checks are required.
As you can see, there are quite a few options when looking for funding for your ecommerce business. You can go the traditional route or try one of the alternative methods and see which option works best for your business.
Keep in mind, you should only borrow money if it is absolutely needed. If it’s at all possible to grow your business without using outside funding, then you are better off doing just that.