As an ecommerce entrepreneur, it can be a daunting task to figure out best practices and financing options for your business. Not only do you need a budget to stock up on inventory, but you also need funding to grow your business with tactics like marketing and launching new product lines. While ecommerce businesses need stock upfront, suppliers often have varying payment dates as compared to shopping platforms. This can create a gap between the day you pay your suppliers, and the day your sales cash arrives. Small online sellers do have options for financing to bridge the gap. Here are some of the financing options for ecommerce businesses.
These loans are generally ideal for larger amounts of borrowing. Consider contacting your bank regarding a loan if you need cash to set up your business, or make big investments. Interest rates can be high and banks can be scared to lend to ecommerce businesses because their working capital often looks artificially low (due to long supply chains and long payment terms).
Peer-to-peer lending is an exciting new form of loan. It can take the form of platforms, which conglomerate lots of investors’ money and lend it out like a bank. This type of lending can also take the form of small direct loans. While this is an exciting new space in finance, new spaces come with risks. Peer-to-peer platforms are not yet fully established. You run the risk of your chosen lender going under, or being illegitimate. Also, the bigger peer-to-peer lenders work very much like banks with the same requirements and similar interest rates.
This option is similar to a credit card but is linked to your bank account. Banks will decide your limit based on your credit history. Interest rates can vary depending on this too. As mentioned before, suppliers generally prefer bank transfers or direct payments. This form of borrowing may be useful if your vendor doesn’t accept credit cards. Borrow what you need, up to your limit, but ensure that you pay it back quickly to avoid heavy fees.
Capital advances aren’t considered a form of borrowing. If you have cash flow from sales, but it is not in your bank account yet, this option is ideal. Capital advances allow you to sell a portion of your future sales and receive the money ahead of time. This means you can spend on increasing stock or other business development initiatives. As a result, these are low-risk. You are only gaining capital that you already have incoming. However, the limit is entirely down to your existing capital. These are particularly ideal for bridging the gap between supplier payments and incoming sales cash in online businesses.