You want your business to be a success, but here’s the truth:
Not everyone is prepared for success when the time comes. The massive increase in orders, the fast depleting inventory, the panic to quickly replenish best selling items – all this isn’t easy to handle.
One of the biggest hurdles?
Cash-flow issues. As you increase your order volume, there’s a good chance you’ll need funding for your ecommerce business rather quickly to meet demand, grow, and scale. Especially if your ecommerce business generates a portion of its revenue through Amazon where it can take 2 weeks to receive payment.
So what do you do when your business is booming but you're short on cash, or you have a great idea but don’t have the capital to launch?
If you’re foggy on how to get one, don’t be.
We’ve done the homework for you. In this article, we’ll tell you exactly what you need to do in order to get funding for your ecommerce business.
Let’s get this out of the way first. Is your business in a healthy condition that it’ll be attractive for others to invest in? If your business does not have enough traction, if your products get bad ratings, if your credit score is not good, or if you’re just launching and don’t have a compelling business plan - getting a loan or investment will be tough.
But if that’s not you – and you’ve instead got a booming business or revolutionary product idea that needs cash to grow, then your chances of securing funding increases significantly.
To identify the best funding options for your new or growing ecommerce business, ask yourself these questions first:
1) How soon do you need a loan?
The quicker you need ecommerce funding, the less favorable terms you’ll get. But if time is a priority, then such lending options do exist in which you can get a loan quickly in order to support your business. We’ll tell you all about it below.
2) How much funding do you need?
The bigger the loan amount you need, the more scrutiny you will need to go through until your loan is approved. Lenders are likely to check your personal credit score, tax returns, profit and loss statements, and other related documents.
3) What do you need the funds for?
Once you get the funds, you will need to plan ahead which parts of your business will benefit the most from the inflow of cash. Do you have an outstanding purchase order from a large retailer and need to buy inventory? Do you have inventory but now need to fund marketing? Make a detailed plan on how you want to use the funds, so you can let your lender or investor know exactly how the loan will help your business.
Now that you know the important things to keep in mind before getting a loan, let’s now focus on exactly what options you have in terms of getting one.
9 Ways to Get Funding for Your Ecommerce Business
1) Bootstrapping
If you have cash at hand, you can opt for ‘bootstrapping’ your business. This means you will personally fund your business out of your pocket and bear 100% of your business expenses. This also means you assume 100% of the risk and of course, profit.
Another good thing about bootstrapping is that you are in full ownership, not just financially, but in its vision as well.
On the other hand, if you decide not to sell equity and finance your business via venture capital, for example, you may lose out on valuable mentorship opportunities which can be the difference between success and failure, or the speed at which you can grow.
2) Friends and Family
If you are lucky to have friends and family you can count on, friends and family are also a reliable way to get a business loan or investment. With this approach, your credit score won’t be affected in case you’re delayed in making your payments, and you may get favorable terms when it comes to the level of interest you’re charged, or the percent of equity you give up.
However, it's also not a good idea to slack on your payments, as this may damage your reputation and may put your relationship with your friends/family in hot water. But if you have a solid business plan in place, and are getting a loan to grow or launch your ecommerce business, securing capital from friends/family is a quick and effective way to fund your ecommerce business.
3) Crowdfunding
If you have a unique product idea for your small business that requires more capital to manufacture and launch than a basic private labeled item, crowdfunding could be a great option. Crowdfunding is the process of raising a small amount of money from a large number of people, typically by offering pre-orders on a brand new product you’re launching, without having to give up equity or pay interest. It’s effectively free inventory financing.
The incentive for people to pre-order is the exclusive and early access to your new product, plus a potential bonus for being an early backer. The most common crowdfunding platform for a new online business is Kickstarter. The beauty of crowdfunding on a platform like Kickstarter is that they have an existing audience that you can reach that have intent to fund new projects.
A great example of an ecommerce business that raised funding through Kickstarter is Exploding Kittens, which raised over $8m on their goal of $10k.
4) Business Credit Cards
Many small business owners will fund their businesses through business credit cards, which will give you access to cash that you don’t necessarily need to pay back right away - many credit cards offer a 0% APY for the first year, which means you’re able to borrow money and pay no interest for a full year.
If you don’t pay off the full balance after the first year, you’ll be charged an interest rate, typically over 20%. This can be much higher than taking out a traditional business loan, so it’s best to keep an eye on how much you’re spending and pay back in time. If you’re able to do so, you’ll find that there are plenty of incentives and rewards you get for paying via the credit card.
If you’re just starting out, you can even use a personal credit card to fund your new ecommerce business.
5) Angel Investors
Individuals who have a high net worth can provide small businesses with capital in exchange for equity.
Since angel investors have skin in the game i.e. the returns they get directly depend on the success/failure of your business, you can expect mentorship and valuable guidance from them, in addition to favorable loan terms and equity.
6) Venture Capital
Many investors pool their investment money into one large fund, and form a firm which invests money in businesses with high growth. Different firms invest in different types of businesses. By developing a solid business plan, and showcasing your roadmap as to how you plan to achieve growth, you can attract a VC firm to invest in your ecommerce business, and secure VC funding. This takes time, but as with angel investing, you will get access to valuable mentorship and advice on how best to proceed with scaling and growing.
7) Working Capital
If you are experiencing a spike in demand and need a loan to cover your expenses for day-to-day operations for inventory financing or marketing capital, you will need a short term loan as quickly as possible. There are many platforms which provide working capital, such as Clearco and Wayflyer.
For example, with Clearco, you can connect your Shopify site and get approved for a business loan within 24 hours. Clearco’s main requirement is that have a revenue history of 6 months. And the best part is that repayment depends on the % of sales you make - which means no fixed payment is set. You pay based on what you earn.
Looking for more ecommerce loans and funding options? Here's our list of the best ecommerce business loans and funding companies.
8) Accelerated Payouts (For Amazon Sellers)
If you run an Amazon business, there are many reliable ways you can get a loan quickly. Payability is one of the most popular options as it allows you to bypass the 2-week holding period and get paid daily as an Amazon seller.
For a full breakdown, read this article on how to get paid faster as an Amazon seller.
9) SBA Loans
If you are a small business in the U.S., and are unable to secure funding from other sources mentioned on this list, you can apply for a Small Business Administration loan (SBA loan). With SBA loans, the SBA itself does not provide loans directly itself, but rather finances a loan in partnership with a lender, thus reducing the lender’s risk of lending to you and making it more likely for them to give you the loan.
Another benefit of getting an SBA loan is that they require a lower down payment, and payment is spread over a longer term, thus meaning you’ll get more available cash each month for your business.
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