There are many ways to get the money you need for your ecommercef business. Most of them, however, aren’t worth the effort.
Here’s where successful e-commerce operators direct most of their time and effort when creating a successful business funding strategy.
Traditional Bank Loans
Of all the sources of small business funding, the traditional bank loan is the most obvious.
Whether or not the loan is backed by the Small Business Administration (USA only), expect an uphill battle. You will need to fill out forms and wait days (if not weeks), and you still may not get the loan.
Bank lending has its advantages, not the least of which is the backing of a solid financial institution.
Banks tend not to make loans to businesses and individuals who cannot repay. When you have a good relationship with a bank, your odds of getting a loan increase.
On the other hand, banks can also be stingy with funds. If you’re a new business, and don’t have a proven track record, you may find it difficult or impossible to get a loan.
Also, because you usually have to repay the money on a set amortized schedule, it can put undue stress on you to turn a profit quickly so you can afford to keep making the loan payments.
Finally, banks often require borrowers to go through extensive credit checks. If your credit is bad or nonexistent, you may not be able to get a loan.
Expect loan amounts between $25,000 and up to $350,000. Most banks won’t lend you that cool million you’re looking for.
Crowdfunding is probably the easiest way to raise capital for your business that doesn’t involve a bank. Instead, you petition investors indirectly or directly.
Crowdfunding sites like Kickstarter and GoFundMe, and many other alternatives, make it easier to get access to money for a startup company as well as for an established business.
Pitching investors directly puts you in front of people who are not just investors, but also probable customers. This means you get insights into what they want, and can tweak your business to suit their needs before you get too far in the planning stages.
The main disadvantage to crowdfunding is it’s usually only suitable if you need small amounts of money. With few exceptions, you’re just not going to raise millions of dollars this way, though - many Kickstarter campaigns have successfully done just that - you can't count on it.
However, you can get between several thousand and maybe several hundred thousand for your next venture, it helps to know what makes crowdfunding success.
Angel investing is a type of equity financing, wherein private investors typically will put up between $25,000 and $100,000 or more for your business venture.
Some angel investors will invest several million into your company.
The advantage here is, of course, the scale. You can raise millions from a few angels and solve a lot of your money problems.
The downside is, these angel investors often want to own a piece of your company and will want you to sell it at some point so they can collect their profit.
Supplier financing is when your vendors or suppliers effectively lend you money or extend credit in exchange for interest or some interest in your business.
This is a great way to get an advance on overhead or supplies, but it’s not one of the better options for small business funding.
The supplier is simply allowing you to buy his or her products or services on credit, not extending a cash loan.
Raising money for small business is hard.
That’s why up to 75 percent of entrepreneurs use their own savings to fund their business, according to a study by BlueVine.
Personal savings could include money in your savings or checking account, your 401(k) plan (or some other retirement account), life insurance cash values, or your home equity.
Personal savings are the easiest to use, since you don’t have to beg, borrow, or schmooze someone else for it.
On the other, it’s the most difficult because you have to have it already saved up. And with current savings rates hovering between 5% and 6%, most people just don’t have the money.
Bonus: Using Business Lines of Credit to Grow Your Ecommerce Business [Video]
Most entrepreneurs use their own savings to finance their business as their primary business funding strategy.
Yet, when you’re tapped out, a bank or angel investor might be able to lend you a helping hand.
Either way, you should be able to get all the financing you need with these simple strategies and a little elbow grease.