E-Commerce – Top Three Financing Options To Startup Or Grow An Online Business

E-commerce businesses don’t need much capital to get started. But they do need additional funds to fuel growth and extend operations. Banks charge online businesses very high rates for loans. The approval provisos are usually so stringent that online businesses are often unable to qualify at all. Collaterals are a must; and with the high interest rate the loan becomes very risky for the owner.

Fortunately, small e-commerce businesses can look at alternate avenues to seed their business growth. Let’s discuss some of them.

Get funds from friends and family

If your funding needs are not too high (around $10,000-$50,000), consider acquiring seed capital by soliciting a loan from friends and family. Have a proper business plan at hand, so you can demonstrate how the money will be used and the expected returns during the next one to five year period. This will make the investors more enthusiastic and you more comfortable asking for the loan. Do this even if you are very close to the prospective loaner.

Consider taking a loan in phases. Make sure you give an account of how each loan installment has helped sustain the business before the next installment arrives.

Contact angel investors

Consider contacting angel investors if you need $100,000 or more as funds. Angels invest in startup businesses to support their growth and expansion. They look for businesses that have been in existence for 1-2 years or at least have solid workable ideas and a strong business plan. You’ll find many websites that help entrepreneurs network with business angels and vice versa. Ask questions to get an idea of the kind of arrangement the business angel wants. Find out which businesses they have invested in previously, the terms and type of agreement that will be used, repayment schedule or how much share they would want you to divest, etc., before accepting the loan.

Incorporate the business to offer private placements

Small businesses incorporate to get tax benefits, protection from personal liabilities, and to acquire funds for expansion. Businesses offer private placements, also called non-public offer, so they have control on who they bring on board and on the expectations of shareholders. With private placements, small businesses can raise a large amount of money in a short time. They also bring down the risks associated with a single investor contributing all the money and as a result putting her in a powerful position over the business.

Apply for a merchant cash advance

Another funding option open to small businesses is business or merchant cash advance (MCA). MCA providers buy a percentage of your future credit card receipts at about 15%-50% discount for a lump sum that is paid as an advance. The amount of advance is based on the monthly volume of your credit card sales, and time in business. It requires no collateral and minimal paperwork. The approval rates are high and the processing time is as short as 3-7 days. MCA works for businesses looking for immediate funds that can be paid back within a year.

Take advantage of the fact that you have more than the bank to go to if you want to expand your business. Whatever funding option you choose, ensure that you understand every aspect of the transaction. Don’t sign any agreements or accept loans without being very clear on the terms of repayment.