You’ve decided to start an online store. What’s next? How do you get financing? Here are six tips to help you find the best sources of financing for your ecommerce venture. Some sources of financing are available through your bank, some aren’t. You can also look to your customer base for financial support. These sources range from non-bank loans to wholesale or dropshipping. Listed below are the main types of financing for ecommerce companies:
Non-bank sources of financing
Banks aren’t the only place to turn for ecommerce funding. Most of them also require a lengthy history and credit score, making them a less attractive option for fast-growing ecommerce companies. These non-bank sources of funding are more flexible, though. Usually, applicants must provide personal information and a bank account number in order to be considered for a loan. If you don’t have any collateral, however, it’s possible to get financing for your ecommerce venture from a third party.
Traditional bank loans may be an option for an ecommerce startup, especially if the business has enough assets to secure the loan. But if you’re just starting out and aren’t sure if this option is right for your business, you can also consider non-traditional financing options. These include inventory financing and small business loan providers. Small business loan providers offer ecommerce retailers short-term finance. They usually repay the loans with a percentage of the earnings from each transaction.
Non-bank sources of financing for e-commerce are becoming more common as businesses realize that they don’t have to rely on traditional sources of funding to stay in business. The Internet has made it easier than ever to access a line of credit from non-bank sources. Many ecommerce business owners look into obtaining financing from crowdfunding sites or from a business angel. These alternatives can provide the capital they need for expansion.
Working capital is essential for any e-commerce business. An online seller needs working capital to buy products and sell them. With ecommerce funding, they can buy products and pay for them with the profits they make. In addition to product purchases, eCommerce financing allows a seller to pay their staff and cover expenses. A successful e-commerce business is always in need of extra cash. This is where the non-bank sources of financing can help.
Another popular source of ecommerce financing is inventory financing. Using revolving credit lines, lenders advance large amounts of money to the manufacturer or supplier. The borrower pays interest on the money. The repayment terms can be flexible, so long as the business has strong margins. One example is a snow-sports merchant that experiences high volumes during October and April, but very little cash flow during the summer months.
Revenue-based financing is another ecommerce-friendly option. Revenue-based financing allows a company to borrow anywhere from $10,000 to $5 million in 24 hours. A typical payment is 5% to 25% of its monthly turnover, and it costs between 6% and 12% to maintain the loan. For example, a $100-loan would cost $112,000 a month. And the best part? This type of financing does not require a business plan or a credit check.