Consider Your Options
Although ecommerce is low-risk and low-cost, it still requires resources to get it off the ground, including salaries, development, web hosting, design, and accounting services. If you’re barely breaking even or growing steadily but slowly, there won’t be any extra money to invest back into the business to encourage growth. Having said that, you can prevent potential problems by seeking out and employing the right kind of funding for the growth of your business. Here’s a list of what’s out there to get you started.
Business Funding 101
Bootstrapping is essentially using your own funds to get your business off the ground. This approach is usually the first form of funding that entrepreneurs resort to before moving onto other sources.
Debt Financing can come in many forms. A Credit Card’s interest rates are high. Paying the minimum could be detrimental to the life of your business by extending the life of your debt. A Line of Credit has an interest rate lower than that of a credit card. You can borrow funds as a personal loan for your business, repay in monthly installments, and use it again without reapplying. A Traditional Business Loan is a one-time dose of cash. It is often the first option people think of if they need help financing their business. Unlike an unsecured line of credit, the business loan disappears once you pay it off.
Equity Financing offers up a portion of company ownership in return for financing. This type of financing can come with strict covenants, high collateral, and decision making limitations i.e. board seats. It involves finding an investor interested in owning a portion of your company or opening it up to the public through shares or stocks. Angel Investing fills in the gaps between the small-scale financing provided by family and friends and venture capitalists. An angel investor provides seed money for starting a business. Angel investors are easy to find and are a good choice for a small startup. Venture Capitalists are extremely discerning private equity investors that seek emerging companies that have the potential to have spectacular exits, normally via a public listing. They expect higher returns on their investments and stake a larger claim to the businesses in their portfolio. They are often experienced and successful entrepreneurs themselves and help direct and shape the businesses they invest in as well as have knowledge and expertise to share.
Crowdfunding is a method of raising capital or even testing out a concept by making pre-orders available through the collective efforts of large pools of individuals, including friends, family, customers, individual investors, and the public. It’s primarily executed online through social media and crowdfunding platforms such as Kickstarter, GoFundMe, and Indiegogo, whose purpose is to help entrepreneurs generate buzz and funds for their projects. Successful crowdfunding campaigns offer something back. It could be giving out prizes, a free product, or selling it at a discounted price.
Revenue-based Financing is when a company agrees to share a percentage of future revenues with investors in exchange for upfront capital. Loan payments are correlated to ongoing gross revenues, typically with credit checks, fixed fees and repayment rates, or possibly collateral. Founders receive funds from an investor to spend on marketing or inventory, and with every sale they make, they repay a percentage of the revenue generated and capital advanced. Typically there are no equities, personal guarantees, or hidden fees involved. Revenue share gives qualifying founders immediate cash for growth without them needing to sacrifice ownership. Already a growing trend for ecommerce companies, you can see why the hype around revenue share financing is skyrocketing!
“Online businesses require capital to scale their sales and often turn to equity investors with the hope that a capital injection into budgets, operations, and personnel, or support from agencies can get the wheel of growth turning,” Nikhil Gokal, DRVE’s Head of Business Development advises. “We provide the alternative; paid growth programs built for ecommerce that combine capital and expertise managed on a performance-basis to power online revenue to new heights.”
In The End
Ecommerce definitely is a lucrative and rewarding way to connect with your customer base and there is no need for financing to hold you back. There are a plethora of funding options for every business owner to get the funding and support they need to succeed. Which path will be right for you?