Regardless if you aim to start a low-cost drop shipping operation, you still need some initial capital in order to enter the e-commerce industry. On average, you might need somewhere between $2,000 and $5,000, which may not sound as much, yet, it might be more than you currently have on disposal. Of course, if you aim to get something a tad more ambitious and include storage and packing facilities, you might ramp up your expenses up to $30,000 or even $50,000. Keep in mind that we’re still discussing the low-end costs of an e-commerce business. With that in mind, it’s more than clear that you need a financing plan and here are several ways you can finance your e-commerce business.
Tech businesses nowadays often finance themselves via the phenomenon known as crowdfunding. It isn’t that uncommon for e-commerce businesses to do the same, either. What you need to do here is find a platform or a setting where you can present your business idea/proposition to a large group of potential customers and ask them to pledge a small amount of money in order to support you. The reason why this works is fairly simple – small donations in large numbers. This means that while these people don’t have to commit many resources, they get to fund an idea that they might come to benefit from in the future. If pulled off properly, you can easily surpass your intended amount, thus starting a bit more ambitious than you’ve initially intended.
2. Venture capitalists
Some people prefer to invest in ideas of others in order to generate wealth, rather than funding a project of their own. These are so-called venture capitalists and there’s a large number of companies specializing in these services. What these companies do is look for promising businesses, yet, seeing as how people employed here have virtually one job (figuring out which investments are worth it), you’ll have a tough job in front of you.
Unlike crowdfunding where you’re talking to a large group consisting mostly of laymen, now, you’ll talk to business world experts. What they’ll want to know are your expected earnings in the next five years, your executive summary and your long-term objectives. In other words, before you even consider reaching out to venture capitalists, you need to have an ironclad business plan. Remember that the format of the business plan depends on the audience, which is why you need to make sure it’s as professional, technical and specific as possible.
3. P2P lending
Previously, we’ve talked about two distinct financing option, nonetheless, there’s one particular e-commerce investment type that might be seen as a compromise between these two. We’re of course talking about P2P lending. Something similar to this form of financing existed in the past, yet, nowadays, platforms like OurMoneyMarket facilitate the process by directly matching lenders with borrowers.
The best of it all lies in the fact that on these platforms, all you need to do is fill in the amount of money you want to invest/borrow, name the loan terms and state your risk and rate (investor) or credit score (borrower). When compared to the traditional way of applying for a loan, it’s more than clear just how superior this method is.
4. Business grants
Going for a business grant is definitely not the first thing that comes to mind, in fact, there’s usually no such thing as the e-commerce-specific grant. Nonetheless, there’s nothing to prevent you from going for a regular small business grant and using the money you receive for an e-commerce. After all, an online business is a model recognized by most governments and organizations, which is why you shouldn’t have an issue to merge the best of both worlds.
5. Small business loan
So, if you can get a small business grant for an online business, shouldn’t you be able to get a small business loan, as well? Of course, you can. The reason why we haven’t listed this earlier lies in the fact that there are so many different business loan types that it would take an entire post just to get over them. We’re talking about term loans, SBA loans, business credit cards, merchant cash advances and much, much more. Either way, depending on whether you’re looking for a secured or an unsecured loan, you might need to have a flawless credit history, which is not something that a lot of first-time entrepreneurs can brag with.
6. Ask friends and family
The next option is usually not something that a lot of people are comfortable with, yet, if you have no other options available, you should ask friends and family. First of all, the main con of this approach is the fact that you may not have someone close enough who has that kind of money available. On the other hand, if you’re starting a miniature-scale of operations and need only several thousand, you might just be able to get this kind of loan. Just remember that once you actually get the money, you need to treat the terms of this loan professionally, otherwise you risk losing someone close over it. The greatest benefit of this method lies in the fact that a friend or a family member may not look for an interest fee.
7. Personal savings
Another idea can be dipping into your personal savings in order to fund this venture. The advantages of this are the fact that there’s no application, no interest rate and you don’t have to worry about returning money. Well, this last part is only partially true, seeing as how the fund that you just drew this money from might need refilling. This is especially the case if you’re using your 401k. Other than this, you also get the privilege of keeping a full ownership of your business.
Fortunately, these seven methods aren’t all you can do in order to finance your business. Home equity loan, invoice funding or even selling an asset are also popular choices. Nonetheless, for someone who’s currently still contemplating this idea, the above-listed seven methods are a great starting point.