Funding for small businesses start-ups and eCommerce companies
You’ve got a great idea for a new business but you need cash to make it happen. So now you have to figure out the quickest way to get your product or services to market to start generating sales—especially in the earliest stages of growth—so you can continue to operate. But what type of financing is right for your new small business venture or online eCommerce company? It depends.
- What type of business are you starting?
- How much funding do you need?
- What are you going to use the money for?
Here are some of the various types of financing typically available to small businesses that need capital in order to grow.
Microloans - this usually refers to small or short-term loans of typically less than $50,000. Entrepreneurs use these types of early-stage funding to pay for office equipment, supplies, and other necessary infrastructure as they are building out their business. A few sources for these types of loans include banks, credit unions, and some government programs like the SBA Microloan Program.
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 lenders' 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. 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.
A/R Factoring - also be referred to as Invoice Factoring, this is when a third-party or ‘factor’ will purchase or advance, 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 option is a popular and fairly straightforward type of financing that 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.
Crowdfunding - Especially well-suited for eCommerce companies, crowdsourced-funding also provides a good way for new companies to test market their products and to start building their audience online before they actually make 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 specific product or service to be delivered at a later date. Platforms such as Kickstarter and IndieGoGo are all popular sources of early-stage funding for eCommerce companies.
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.