As with starting any business, you need money to start an e-commerce store. For some people, taking out a traditional loan may not be the most appealing option. Sure, it’s money up front, but you have to pay it back with interest. Here are seven e-Commerce financing alternatives to fund your startup.
Equity crowdfunding has really taken off as a primary form of e-commerce business funding in the last decade. Forty percent of crowdfunding campaigns are business-related, and the average campaign earns $5,270. Combined with other financing, this should be enough to get your business off the ground.
With equity crowdfunding, You can launch a crowdfunding campaign and individuals on platforms such as Scoopers and Eureeca will back you up and receive equity in exchange for their contribution. Be sure to promote your crowdfunding campaign on social media. Investors including: relatives, friends, friends of friends, and strangers who were once in your place.
A business grant is similar to a university scholarship. The money may come from county-level committees, businesses, or non-profit organizations as a way to support aspiring business owners. Applying and acquiring a grant takes work though. In addition to submitting an application, you may also have to submit a detailed business proposal and go through multiple rounds of interviews.
Some grants are exclusive to certain demographics or businesses within a certain industry. Examples include grants for veterans or applicants who can prove financial hardship. Look for grants in your demographic to reduce the competition. An example for business grants: Saudi Social Development Bank.
An angel investor is an individual who funds your startup. This isn’t a loan, and you don’t have to pay the money back even if your business fails. The angel investor instead acquires a small share or equity position.
To appeal to angel investors, you need to have a strong business proposal and product/service pitch. The investors may also propose some ideas of their own that you may have to capitulate to.
Similar to angel investing, you can also acquire funding from venture capitalists. These consist of a group of investors and corporations that fund startups in exchange for equity. Whereas angel investors tend to be individuals, venture capitalists or entrepreneurs who are part of a venture capital firm. As such, they’re able to provide higher funding than an average angel investor.
VCs usually will not fund an e-commerce startup from the ground. They’ll only fund companies that have received several rounds of funding through other methods and have a consistent record of attracting clients and revenue earnings. With this in mind, VCs should not be your first go-to funding source.
If you have some money saved, you can fund the entire operation yourself. Colloquially known as bootstrapping, this can be beneficial for those who have a decent nest egg in the bank. As a self-funder, startups:
Instead of going through traditional funding channels, you can ask people in your inner circle. The benefits here are multifold:
Similar to Angel Investing and Venture Capital, Revenue-Based Financing is a method to raise and receive capital for your business from investors who will receive a percentage of your ongoing gross revenue in exchange for the money invested until the original investment has been repaid.
Revenue-based funding will fund your startup from the ground up while not giving the investors any ownership in the business. This is why revenue-based financing is often considered as a hybrid between debt financing and equity financing.
