It seems like everybody is working on a startup. In some ways, this makes sense as owning your own business is an American tradition. Another tradition is finding money for said business. E-commerce startups seem to be a particular challenge. One big reason for this is that most e-commerce companies operate out of the owner’s back bedroom – especially in the beginning. While there is nothing wrong with this, it does make it harder to get a loan from a bank. With that in mind, here is a list of the best ways to finance your e-commerce startup.
- The Piggy Bank
Ok, you’ll probably have your money in an actual bank, but using your savings is a great place to start when you are bootstrapping your e-commerce startup. That is, you are running on a lean budget and are not taking on any loans or outside investors.
Listen, bootstrapping is hard but it can be gratifying as you can look back at the entire experience knowing that you have built something from scratch – and without any outside help. However, breaking open the piggy bank is not for everyone. In some cases, you might not have enough money in savings, or those funds might be earmarked for your kid’s college education.
- Credit Card Roulette
While this is a very dangerous way to finance a startup up, nearly every founder out there has used their credit cards to help when setting up a new company. In fact, the founders of Google used their credits when they first set out. However, they were very careful and this is a lesson you will need to keep in mind if credit card roulette is your first option
Why should you be concerned? Using your personal credit cards for your business has the potential to ruin your credit score. In addition, you will have to carry the high-interest rates and other fees associated with credit card usage. As such, using your credit cards to finance your e-commerce startup should only be used when you know that you will be able to pay off the balance right away. If not, then you will quickly find yourself drowning in debt.
The can include sites like Kickstarter, but also peer-to-peer lenders. Both are great examples of how the power of the crowd can be used to make great things happen. Some peer-to-peer sites can issue loans up to $100,000, while the sky is the limit with crowdfunding sites.
While this sounds like manna from heaven, the truth is that a crowdfunding campaign requires a lot of time and energy to follow through. In addition, you must pay higher than normal origination fees and interest rates. As such, closing a crowdfunding round can require more time and money than other forms of finance.
- Alternative Finance
This is one of the fastest growing forms of lending in the U.S. today, especially for small businesses and startups. The sad truth is that traditional banks are no longer able to service small businesses. It’s even worse if you have an e-commerce start up as you have no collateral to speak of.
As such, alternative finance companies have stepped in to fill the void. These lenders understand the needs of startups, even e-commerce startups, and they have programs to finance working capital requirements, inventory purchases, or accounts receivables.
Lastly, alternative lenders such as http://www.mulliganfunding.com/ know that you are looking for a fast and simple process and they have a certain amount of flexibility when it comes to structuring your financing needs.
While angels are picky when it comes to where they place their money. There are a growing number of angel investors around the country who have an interest in e-commerce companies. Besides funding, an angel investor will provide management advice and connection. Maybe it is introduction to a major buyer who can make or break your business or maybe it is the know-how to get your product made for better quality at a lower price.
Landing an angel investor is a time-consuming process. Not only will you need to create a pitch deck and other supporting materials. You will also need to meet with multiple potential investors before you find the right one. But if you are able to find an angel, you will get more than financing, you will get a partner who will help you grow your business.