After launching a successful direct-to-consumer (d2c) brand, you're now starting to think about growth, especially at the early stages of your eCommerce journey. Finding the required capital for increased marketing and new product development are key steps to building your brand online. But what type of financing is right for your growing online company? It depends.
- What type of business am I in?
- How much funding do I need?
- What am I going to use the money for?
Once you’re clear on exactly what you want to do and what you need, here are a few of the various types of financing typically available to eCommerce businesses that need growth capital in order to scale.
Friends & Family
Whatever stage you’re at along your entrepreneurs journey, you’re most likely gonna need access to additional working capital at some point along the way, in order to stay in business. Thinking through your various options from the start and having a clear plan will help you to succeed in the long run.
Business Line of Credit
This is the traditional route for many small businesses. Think of this as a credit card. You borrow money against the lender’s reserves and pay it back over time, with interest. You can then continue to build good credit with the lender and borrow more amounts of money in the future, so long as you continue to pay it back on time. Most major US banks and a host of online lenders will provide business owners with small business loans if you have good credit. Shop around for the best terms for your loan, based upon your credit score.
This usually refers to small, short-term loans of typically less than $50,000. Entrepreneurs use this type of early-stage funding to pay for office equipment, supplies and other necessary infrastructure as they build out their businesses. A few sources for these types of loans include banks, credit unions and some government programs like the SBA Microloan Program.
Also be referred to as Invoice Factoring, this is when a third-party or ‘factor’ will purchase or advance payment, for anywhere between 50-100% of the small business ‘receivables’ (outstanding debts that are owed to the business for goods or services rendered but not yet paid for), in exchange for cash. Fees for this type of financing vary widely depending on the lender.
Merchant Cash Advance
Different from A/R Factoring, this popular option is a fairly straightforward type of financing which can quickly provide much needed cash at early stages for your online business. Basically, the lender provides the cash in exchange for an agreed upon portion of future credit card transactions, including the amount of the loan plus interest, similar to a bank. Since all transactions are handled electronically, it's easy to keep track of payments for both parties.
Especially well-suited for eCommerce companies, crowdfunding also provides a good way for new companies to test market their products and to start building their audiences online before they actually make or deliver the product. The proof is in the pudding because the market will let you know what they think about your products, without having to shell out the resources to actually manufacture them in bulk. You’re basically offering your proof of concept in exchange for reward gifts or some other specific product or service to be delivered at a later date. Platforms such as Kickstarter and IndieGoGo are popular sources of early stage funding for eCommerce companies.
As you consider the various types of funding available to you, also consider your long-term business goals. Are you just looking to exit and sell your brand, run a lifestyle business or do you want to save the world? These considerations will have a huge impact on the type of funding you go for. Think it through, shop around and choose wisely for what makes the most sense (and cents) for your eCommerce company.