To start your business, you must pay to get paid.
You know that getting an ecommerce business off the ground is a big investment. However, you're not sure where you will get the money.
It can be tough to come up with the cash you need. You might have to take out a business loan, use your personal savings, or find investors. There are many options in mind, but you're unsure which one is the best solution.
This article can help! We'll discuss the five most common ecommerce financing options so you can start that business as soon as possible.
The 5 Most Common Ecommerce Seller Financing Methods to Start Your Business
Funding to kickstart a business is a tough challenge for most entrepreneurs. You need to have the money to cover business costs and ensure you can earn more than you spend.
It's not easy, especially if you don't have a solid financing plan. This is where the different methods of financing come in handy.
Below are five common ways to fund your business and get it running while avoiding financial stress.
Crowdfunding involves asking for donations or investments from larger groups of people in exchange for exclusive perks. This is typically done through an online platform like Indiegogo and Kickstarter.
Crowdfunding is good for raising money fast, preventing investors' involvement with your business management, and public awareness. However, the competition is high, and you have to spend substantial amounts on marketing.
#2: Merchant Cash Advance
A merchant cash advance is when you sell a portion of your potential sales at a discount for an immediate lump sum. The funding company collects daily or weekly payments from your business credit card purchases until the loan is repaid.
This method is ideal if you need quick cash access and no set payment amount. It's also simple to track, and it's up to you to use the money however you like. At the same time, it's only a short-term funding solution and can cause financial trouble if the market is unstable.
Bootstrapping means self-funding your ecommerce business with personal savings. This is a common method for startups that get low money returns. Additionally, it provides you with the following perks.
- Complete control over your company
- Zero interest
- Straightforward and inexpensive application
- Doesn't require giving up equity
Meanwhile, this financing method can also put you at personal risk if you can't apply it properly. Your business will lose a lot and may even affect your personal expenses.
#4: Line of Credit
Do you need a more flexible financing solution? Then, a line of credit might be a better option for you. It's a preset loan a financial institution has agreed to lend you. You're free to use as much or as little money within the credit limit.
This type of funding requires you to pay interest based on the portion you use. It's incredibly beneficial for an ecommerce business because it can handle unexpected costs and demands. That said, a line of credit also has high-interest rates and lower limits.
#5: Debt Financing
This financing method uses the daunting idea of debt to generate money for your business. You take on a loan and agree to pay the money back (with interest.) There are various types of debt financing, such as term loans, venture debts, credit cards, and revolving lines of credit.
On the good side, it's manageable and won't require giving up ownership to acquire funds. Furthermore, some of your expenditures can be tax-deductible. On the bad side, repayments are non-negotiable, and the rate of interest is often high. Even business failure is not an excuse; you have to pay it back no matter what.
Choose the Right Financing Method for Your Ecommerce Business
There is no single, fixed answer to the right financing method for your ecommerce business. Whatever method you pick depends on several factors, so take time to research before making any decisions. Here are some review points to help you evaluate each option.
- How much money will you need? Check whether you need a lump sum or an ongoing supply of funds.
- What sort of projects will require funding? Choose between short-term and long-term sources.
- What are your preferred terms and conditions? This is especially important if you're aiming for equity backing.
- What is a feasible repayment system for you? This is vital if you're taking on debt financing.
- What is the size and status of your company? See if you are capable of borrowing from financial institutions or not.
- What is the capital cost of your potential financing sources? Make sure your business can afford them.
These should be enough to guide you to the best financing source for your ecommerce business. Feel free to include additional details on your list as necessary.
Start Your Ecommerce Business Smoothly With Unloop's Help
There is no one-size-fits-all financing solution for ecommerce. Your chosen method should be based on the specific needs and circumstances of your business. We listed five of the most commonly used financing methods, hoping you'll understand more about financing and find something suitable for your business.
Once you kickstart your business with good ecommerce financing, the next challenge you'll face is financial management. Managing business income and repayments rely heavily on accurate bookkeeping and accounting. If you can't do them right, you might end up in deep financial trouble.
But don't worry. Unloop can help you get started on the right foot with proper bookkeeping and accounting. We keep your books organized, accurate, and updated. Additionally, we work with partner CPA firms to help you meet financial deadlines and avoid penalties.
Start your smooth ecommerce business journey with us! Book a call now and know more about what we can offer.