6 Ways To Fund Your E-commerce Business
Fund your eCommerce business through bootstrapping, venture capitalists(VC), Crowdfunding, soliciting support from family and friends, bank loans and grants.
Whether you have a business and looking forward to scaling up or you’re just thinking of starting afresh, you will require some amount of capital to help you effectively run your business and stay afloat.
The thought of getting startup capital is common with beginners. The possibilities are endless- however, sometimes choosing the best funding options to translate your business ideas into a real business can be challenging.
With the right knowledge, you can raise funds from your personal coffers, friends and family or investors with ease. In this blog post, you’ll learn about some of the best ways you can fund your eCommerce business as a starter.
Bootstrapping is a funding method that involves starting your business from your own resources. It is the simplest way to fund a business because you just have to save the little money you have to get your business running.
The good side of this method of running your business is that you’re forced to think outside the box and do away with fluffs and other unnecessary expenditures.
For example, instead of renting a plush apartment to start your business, you can make use of your garage or storeroom for the meantime.
Another perk of bootstrapping is that you avoid debt, at least while you’re getting started. Since your capital is not a loan of any sort, thinking of how to clear your debt won’t be a hurdle.
Additionally, since you’re financing your business from your own pocket, it makes it easier to take decisions. This is because you don’t need to consult any bankrollers or shareholders when taking strategic decisions about your business. This makes it easy for you to take risks you consider worthy.
The downside of this strategy, however, is that it’s not suitable for people who have no means of income and hence, cannot save towards their dream business.
Another strategy to fund your business is to fall on venture capitalists(VC). These are a pool of investors who pump money into promising start-ups in exchange for a stake of equity. Equity is simply a percentage of your company. When venture capitalists invest in your business, they become part owners of your business.
The percentage of stake they take will depend on a number of factors including your bargaining skills, how much they’re willing to invest in your business and the prospects of your business.
One advantage of this method is that it makes it easier to get the needed capital to expand your business and grow. Whether you need to procure automation tools, open up new offices, hire consultants or even hire new workers, venture capital approach will help you get the capital you need to do all that.
Some well-known venture capitalists include Jim Breyer, an early Facebook (FB) investor, Peter Fenton, an investor in Twitter (TWTR), Peter Theil, the co-founder of PayPal (PYPL) and an early investor of Facebook, etc.
While it’s a good venture to get capital for your business, you should take note that venture capitalists do not usually fund ideas but flourishing and promising businesses. So if your aim is to get capital to get you started from scratch, then VC is not an ideal funding option for you.
Moreover, to attract venture capitalists, your finance books must be of good standing. This is because these investors always look for companies with the potential for strong growth and a unique product or service with a positive competitive advantage.
Crowdfunding is the unique method of raising money to fund a project or venture from a large number of people who each contribute a relatively small amount, typically via the Internet.
Some of the most popular platforms for crowdfunding include Kickstarter and Indiegogo. Kickstarter is well-tailored for entrepreneurs who wish to raise money to fund finite projects with a clear goal they want to bring to life. Typical examples of such finite work include albums, books, or films. The people who pledge money towards your project are termed the backers.
With this method, you don’t need to pay back the funds you raise neither do you cede any equity to your backers. You only have to compensate your backers with one-of-a-kind experiences, limited editions, or copies of your creative work being produced.
Indiegogo is popular for many of the same uses as Kickstarter.
However, If you’re considering crowdfunding to fund your business, you should figure out what legal protection you need to safeguard your idea before you launch your campaign.
Family and Friends Funding
Another brilliant way you can fund your business is to solicit support from family and friends who believe in your dream. To get their buy-in, you should draw a concrete business plan and a financial model of how much you need to get your business running and a repayment strategy.
Trust is a precious jewel so make sure you repay every penny they invest in you based on the payment plan agreed on. Because these people are close to you and understand your situation, you can propose a flexible payment term that will give you a stress-free mind to repay when your business starts earning profits.
Typically, you can also advance a loan facility from a bank and use it to run your business. In 2017, 40% of business owners in the US turned to small business loans to finance their stores — to the tune of $600 billion.
The only hurdle when it comes to getting a loan is that banks typically look for evidence of the operation of your business before they give you the loan and sometimes require collateral. This means if you’re just starting new, you may find it difficult to get the needed loan. However, different banks have their own policies regarding loans.
Keep in mind that you will have to pay back the loan with interest within an agreed period. So look for banks with low interest rates and reasonable payback terms.
So if you’re looking forward to financing your business with a bank loan, it’s important to look into all of the options before you sign on the dotted line. You should also figure out how much debt you can carry comfortably so that you don’t saddle yourself with loans you can’t repay.
Bank loans come with collateral and you could land yourself in trouble if your business fails to survive. But what if you can actually get free money to finance your business? Grant is a form of free capital that is given to people who want to start a project but lack the means. You have to draft a strong proposal and pitch your idea to the committee that disburses the grant.
In the US, there are over 1,000 federal grant programs that small business owners can apply and secure funds to run their businesses. Some grant opportunities also target women and minorities who are looking for funds to start small businesses.
Notwithstanding, you should note that since it’s ‘free’ money, it can be incredibly competitive to get if you do not have a strong proposal. Besides, you cannot use grant money for a project outside what you originally pitched on.
Finding capital to start your business can be burdensome. If you have been contemplating starting a business but lack of funds have shelved that idea, it’s time to rethink again. Read the best eCommerce books to help you identify viable funding options to tap in to become your own boss.
Help us publish content solutions that serve value for your eCommerce business by leaving your views in the comment section below.
Call To Action
If you want to read more content on how to succeed as an e-commerce owner, sign up for our weekly newsletter below to receive resources and tips on how to grow your eCommerce business straight into your inbox.