6 Popular Funding Options for an Ecommerce Business

The prevalence of ecommerce is continuously growing and there is no sign of it slowing down. Every offline retail store should be looking at the possibility of venturing out into the online market where they can sell their products and services. People with entrepreneurial ambition are looking at opportunities to start an ecommerce site. And why shouldn’t they? Ecommerce has quite a few major benefits, among which include:

1. Stay competitive: The online market has far larger shoppers. Having an online store helps you tap into the large online population.

2. Go global: The brick-and-mortar setups are restricted by location. Ecommerce gives you the opportunity to go global and boost your revenue stream.

3. Lower costs: Digital marketing for your ecommerce is comparatively cheaper than the amount you would otherwise spend on a full-fledged sales and marketing team.

4. Save on rent: An online store can cater to a larger consumer base without you investing in a larger physical space/office.

Although ecommerce is low-risk and low-cost, it still requires funds to get it off the ground, like salaries, development, web hosting, design, and accounting services.

Having said that, you’ll need to know what funding options you have to start your online business. Let’s explore some of the most popular funding options available for online businesses.

1. Line of Credit

An unsecured personal line of credit for business 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 whenever the need arises without going through the hassles of reapplying.

The best part is that you’ll pay interest only on the amount you borrow and not on your whole approved credit limit.

2. Credit Card

A credit card gives you instant access to money. But, it has its own share of downsides. The interest rates are high. So, if your business is not making enough money, paying the minimum amount could be painful. That means you could stay in debt for a longer time.

3. Crowdfunding

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If you’re selling something you have created, you may be able to get financial help through crowdfunding, especially if your product is unique, creative and one-of-its-kind.

Successful crowdfunding campaigns often offer something back. It could be giving out a free product or selling it at a discounted price.

4. Traditional Business Loan

A traditional business loan is the first option people think of if they need help financing their business. However, unlike an unsecured line of credit, the business loan disappears once you pay it off. If in future you need finance, you need to reapply. So, if you need a one-time dose of cash, a business loan could work.

5. Angel Investing

An angel investor provides seed money for starting a business. The investment could also provide ongoing support to help the company sail through times of financial crisis.

Angel investors are easy to find. They could be your family, friend, neighbor, parents, or anybody you know, who has the money to carry your company through initial financial setbacks. You can also find angel investors through online funding sites.

Most of the angel investors prefer to have partial ownership of the business. However, it’s up to you to weigh the pros and cons and decide whether the investment is good enough to lose some equity of your business. Angel investing is a good choice for a small startup or ecommerce businesse.

6. Venture Capitalist

If your aim is to start big, you’ll need a larger amount of investment. VCs are the perfect people for you.

Venture capitals (VCs) are wealthy investors. They invest more than angel investors, but they are picky investors. They’ll only invest in startups that have the potential to show profits.

Since their investments are huge, they expect higher returns on their investments and larger claim to your business than angel investors.

But, they are business savvy people with the mind of an entrepreneur. They’ll offer their expertise and guide you to make a successful and profitable business venture.

The bottom line…

If you have an offline store and are trying to have an online store, or if you are hoping to make your start as an entrepreneur, ecommerce is a lucrative and rewarding way to become your own boss. If financing is holding you back, there are many funding options for every business owner to get the funding they need to succeed.

Shiv Nanda is a financial analyst who currently lives in Bangalore and works with MoneyTap. You can email him at shiv@moneytap.com.