You’re creating a new eCommerce business with aspirations of success, but quickly you discover that you’re going to need funding. Unfortunately, you can be left bewildered when deciding between loans and grants, angels and venture capitalists. Asher Ismail, a co-founder of Uncapped, takes you through the funding options open to you and weighs up the pros and cons so that you can decide on the ideal funding option for your eCommerce business.
1. Ecommerce loans
Dedicated eCommerce funding offers a contemporary funding solution to a modern business model. Unlike traditional loans, you pay back the loan according to how successful the business is. So, in a month when your revenue is high, you pay back more. It makes things safer and more doable for eCommerce start-ups.
Pros: You’re in control of the funding and can make business decisions rooted in potential success rather than servicing the loan. It’s quick and flexible, making decisions within hours and days. You don’t need to attach any personal guarantees to the loan, so it’s safer than some other options.
Cons: You need to showcase six months of trading and have a healthy monthly revenue figure to get approved.
2. Bank loans
Traditionally, businesses would turn to their high street bank for help with funding through a loan. Various types of business and personal loans are available with varying terms and interest rates.
Pros: You don’t hand over control of your business to investors, and you get to decide how to spend the cash.
Cons: You’ll need a rock-solid business plan which may prove constrictive. Interest rates can be high, and the application process time-consuming and laborious. In addition, you may have to guarantee the loan against your personal assets.
3. Short-term loans
Some businesses offer short-term loans to help out with boosting cash flow or improving working capital. These loans can get you through a tricky point with your finances that often arise in the early days of running a business by bridging the gap to enable you to continue.
Pros: They are fast and tend to come with relatively few questions asked.
Cons: These loans can be risky; don’t take them out if you’re in financial difficulties. Interest rates tend to be very high.
4. Family and friends
Turning to family and friends for loans or gifts is an age-old way of raising funds.
Pros: It tends to be flexible and significantly indicates your loved one’s faith in you. It could be interest-free.
Cons: Mixing personal and business relationships can be tricky, even damaging the most important relationships in your life.
5. Crowdfunding
Head online, and you’ll find numerous platforms for seeking funding from the general public. The way this happens varies and may involve lending or offering out shares in the business.
Pros: If your eCommerce business demonstrates impressive growth potential and can form a buzz of excitement, then it’s a way of raising cash.
Cons: It can take time to gain traction. You’ll need to put in tons of effort with marketing and publicity.
6. Business angels
Angel investors take their own sizeable personal wealth and offer funding to young eCommerce businesses in return for a share in the company.
Pros: You get the funding from one source and benefit from an individual experienced in running a business like yours.
Cons: You’ll hand over a chunk of your business and, with it, lose some control. They can offer decent sums of investment, but if you need the really big bucks, this probably isn’t for you.
7. Venture capitalists
Venture capitalists can typically offer more than angel investors as they are more prominent organizations. They plan to invest heavily in your eCommerce business, help you out with growth, and then realize a good return on their investment by exiting quite quickly.
Pros: You can secure large amounts of investment and gain from professional business support. You benefit from accessing a helpful network.
Cons: You hand over a large share of equity, and you lose control. The pressure can be immense.
8. Guaranteed loans
If you don’t qualify for bank loans or any funding that requires some trading history, guaranteed loans may be an option.
Pros: An option if you’re struggling to secure funding from traditional routes.
Cons: They can be risky and complicated for you to qualify.
9. Grants
Depending on your location and business type, you may qualify for different grants. Grants are government-backed direct payments that don’t need paying back.
Pros: Grants are a way of getting funding that doesn’t need paying back.
Cons: The grant can come with strict terms and conditions regarding spending. The application processes can be incredibly tough and time-consuming, with no guarantee of success.
10. Incubators and accelerators
Depending on what your eCommerce business is doing, turning to seed investment programs may be possible. They help start-ups scale quickly in return for equity.
Pros: Start-ups in incubators and accelerators receive immense support, training and expertise to grow the business exceptionally quickly.
Cons: The application process is competitive and demanding. If successful, you give over some degree of control.
Choosing the best funding for your business requires careful thought. For most eCommerce businesses, eCommerce loans are an ideal solution.
If your company is growing quickly you will be able to repay your revenue easily but if that is not the case, the best way to attract more clients is by developing your brand, which is a vital process in the world of digital marketing. Getting organic traffic to your e-commerce store is one of several ways to obtain a return on investment. Global e-commerce sales are expected to grow over 100M dollars by 2023. so SEO is going to get more competitive.
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