How to Finance your eCommerce Business
It’s very easy to walk into a bank with great credit and lots of assets and walk out with a loan in hand. But with all of that going for you, you probably don’t need a loan. If you’re wondering how to finance your ecommerce business without tons of resources at your disposal, the methods below have proven workable.
Friends and Family
The most tried and true means is to enlist friends and family as investors or silent partners. The advantages here are many; these people know who you are and where you live, so the hurdle you’ll have to clear to get the money you need is considerably lower than when you’re dealing with a financial institution. However, these people also know who you are and where you live, so make sure you’re borrowing for something with solid growth potential. If it goes sideways, you’ll be laying personal relationships to waste.
Peer-to Peer Loans
One step removed from friends and family, but still not quite as rigid as borrowing from banks, peer-to-peer loans are unsecured financing (meaning no collateral is required) between individuals with an online clearinghouse serving as the mediator. They match lenders to borrowers, run background checks on applicants and make recommendations to lenders based upon their findings. This works out to be cheaper for the borrower because the interest rates are much lower than a bank would charge. And, even with their fees, these companies can make money for themselves and the lender because their overhead is much lower than a bank’s.
Seek Partnership Opportunities
Teams of people coming together to share their expertise toward a particular goal have started many successful businesses. Working this way greatly minimizes the cash outlay required from each individual. Plus, companies like Shopify, considered by many to be the best website builder for ecommerce, offer robust platforms for very little cost. With this approach, along with leveraging strategies such as dropshipping and guerrilla marketing, a group of people can get an ecommerce business started with far less cash up front than you might think.
While the paperwork involved can be a significant hurdle and you still might get refused in the end, the United States Small Business Association does guarantee startup loans from participating banks, which could get you consideration you might not get on your own. It’s important to note, rather than make the loans, the SBA establishes guidelines by which applicants are to be considered, then guarantees repayment of the loan, once an entrepreneur is approved. The organization also helps you prepare your application to ensure you have the best chance.
Accredited private investors will take a stake in your company in exchange for providing you with seed capital. These people are defined by the SEC as individuals with incomes in excess of $200,000 a year, or households with a net worth in excess of $1,000,000. A number of online portals have popped up to help entrepreneurs and investors come together in this fashion. Going this route frees you from making presentation after presentation to individual venture capitalists or angel investment firms.
These are but a few of many ideas for getting the money together to finance your ecommerce business. Whichever method you choose, it’s always a good idea to take careful stock of your situation to see if there’s a way you get up and running without incurring debt. If you must take on investors or get a loan, be very careful to ensure the revenue you’ll generate will be sufficient to cover them—while also providing for all of the other needs of your business.