How are Ecommerce Startup Businesses Financed

Financing startups has its challenges, and this is even more true when you’re talking about an ecommerce startup.  Traditional funding streams carry a lot of risks, and you usually end up losing revenue in the long run. Ecommerce businesses are typically viewed negatively by lenders because they don’t understand how the space works. However, you need to grow to continue developing your business. Businesses that stagnate rarely last very long. So, you need access to funds to begin your expansion. Take the time to consider the best option for your startup. Your decision depends on what you require from your finances, and what risks you are able to take. Here are some of the most common methods of financing startups.

Take the time to consider the best option for your startup. Your decision depends on what you require from your finances, and what risks you are able to take.

VC FUNDING

Venture Capital funding is a form of private investment for financing startups. Investors typically look for companies with high growth potential. Their investments are considered high-risk, but they do have high returns when chosen correctly. Investors take an active role in the companies, often requiring a board seat. In exchange for the funding, investors require a percentage share of the company. The benefit of VC funding is that large amounts of capital are available. The investors also provide business guidance and access to their wealth of connections. Both of these are particularly useful for companies that are beginning a growth period. Repayment is also not expected. As the investor takes a percentage of the company, the founder has less ownership status within their own business. The backer will want to be involved in the company, so you would have to give up some control. Expectations are that the business will make money, so there is more pressure for your growth period to be successful.

BANK LOANS

Business loans from the bank are often the default choice when searching for financing startups. You need to make a good case for your business. This will be based on the repayment history, reputation of your business, and any relevant references. Your personal credit history could also be taken into account. Compared to VC funding, bank loans offer the benefit of keeping 100% control over your own company. They are a temporary solution. Once repaid, your business no longer has any involvement with the lender. However, it is tough to qualify for bank loans. Cases that are considered “high risk” are unlikely to be approved. This is particularly true for ecommerce startups. Online businesses are viewed as risky investments by banks. Interest rates are high on bank loans. Repayments must be made on time, or there is a risk to assets. They can limit cash flow for the business, as repayments are a priority.

PERSONAL INVESTMENT

This startup financing option involves using your own wealth to finance and grow your business. This is ideal if you have savings, or the ability to save. This option may also involve investment from your friends or family. You can maintain full control over your business. This means that 100% of the profit is left to you. There are no repayments required, providing no restrictions on cash flow within the company. It also requires you to operate within your means and avoid excess spending. However, this may not benefit a growth period for a startup. Growth can be unpredictable, and you might need access to more budget than you have available. Your expansion could be stunted by the limit of your savings. The investment of personal wealth can cause strain on your personal life. This is especially true in cases where relatives are involved. It is also worth considering whether you can afford for the business growth to fail.

CAPITAL ADVANCE

Capital advances offer the benefits of a loan, without the risk to assets or credit history. They are not a form of borrowing. Instead, your expected revenue is offered in advance. Your expected sales or revenue is assessed and purchased from your company. This provides you with your future funds ahead of time. Advances allow you to cover any necessary payments now, instead of waiting for the revenue to arrive. Funds are released quickly. They also carry less risk, as the funds are tied to revenue that you already have. The founder retains 100% ownership of the business, and they are able to control the growth. The funds do need to be repaid, but the benefit is that you will have the revenue in the future. The amount given is based on the current progress of your business. Access to low-risk funds can drive your startup growth with confidence.

STARTUP FINANCE

Growth periods require a good amount of investment. Acquiring funds with low risk is key. As your company begins to grow, it is important to avoid being tied to lengthy financial obligations. The decision boils down to the amounts needed to fuel your startup growth. Ensure that you have a firm idea of the funds that are required to take your business to the next level. At Yardline, we offer capital advances to help businesses thrive. We also provide access to a wealth of business knowledge, growth tools, and advice from professionals.