Starting or growing a business requires much money, even if it is a small e-commerce venture. Luckily, several small business loans and grants are available to help cover the costs. This article will discuss the different types of small business funding available and help you choose the best option for your eCommerce business.
Grants & Loans: A Great Financing Option for Small Businesses
A small business grant is essentially a free loan. You don’t have to repay it at any time. However, it is essential to note that most grants come with contingencies and restrictions regarding who can apply for them and how to spend the money.
The purpose of a small business loan, or financing, is to provide you with money that you must eventually pay back. A flat fee is charged on some small business loans, while an interest rate is charged on others.
Small Business Financing Options
Small business financing can come in three different forms:
- Debt financing requires you to repay a company with interest on a set schedule.
- Equity financing involves a partner or business entity lending you money in exchange for business ownership. Because you have a business partner, you’ll usually pay them a share of your future earnings and lose some revenue. However, the loan interest is generally accessible.
- Revenue-based financing is a unique option. With this type of loan, you pay back a percentage of your revenue instead of a fixed monthly payment.
However, each group of lenders differs in what they offer. Banks, governments, and private lending businesses provide most loans, while small business grants vary in terms of restrictions and requirements. In general, grants are harder to find than loans.
Also Read: An Overview of E-Commerce Financing: Available Options and Why You Need Them?
5 Loan Options For E-commerce Ventures
There are a variety of loans available for eCommerce businesses. Traditional small business loans may not be the best option, as most business owners can’t get bank loans. However, online lenders offer speed and flexibility, which may be a better option for some businesses. Some of the options are listed below:
1. Inventory financing or purchase order financing:
It is the best option for fast-growing eCommerce businesses. A lender will pay a good portion of the production cost to the supplier or manufacturer, which helps eCommerce businesses get funding. You’ll pay interest to the lender.
2. Ecommerce invoice financing
This option can improve cash flow. A lender immediately gives you up to 85% of the unpaid invoice in this type of business loan. You’ll get the rest after paying the bill, fewer lender fees. Many diverse small businesses do this.
3. SBA loans
A popular financing option for established online businesses looking to expand, these loans are backed by the U.S. Small Business Administration, making them a good choice for companies with a solid financial history. At the same time, new businesses shouldn’t rely on SBA loans because they’re hard to get and take time to approve. Intermediary lenders work with borrowers to set up the best repayment terms for SBA loans.
4. Business credit cards
Credit cards can be a great way to finance an e-commerce startup. A business credit card with a 0% intro APR lets you spend without interest for a limited time. However, you should pay off your balance before the introductory period to avoid paying APR.
5. Business Line of Credit
The best way to finance incremental eCommerce expenses is through a business line of credit. You can borrow against a pre-approved line of credit and pay only interest on what you borrow, making it the best type of financing for small businesses.
How Helpful Are E-commerce Grants?
Ecommerce grants can be an excellent way for businesses to get free money. However, it can take time to find the right grant, and the applications can be lengthy. Many different grants are available based on location, industry, and alma mater. It should be noted that veterans, women, and minorities may have an advantage when applying for grants.
Small Business Financing: 3 Factors to Consider
Before taking out a small business loan, you need to consider the following three aspects:
When looking for small business financing, it is crucial to think about: the
- Ownership of the business
- Control of the business
- Risks involved in the industry.
For example, equity-based loans may require you to give up some ownership of your business. These loans are usually low-risk but may not have interest rates.
There are many different ways to finance commerce, and deciding which option is best for your business can be challenging. When faced with dilemmas or too many options, ask yourself these questions to help you figure out what’s the right fit for you:
- Is money needed soon?
- Do I need to borrow money?
- Is my business profitable?
- What should I pay?
- Would I instead give up equity or pay interest for this financing?
Be Smart & Invest Wisely
It is important to be shrewd and alert when borrowing money from an external source, regardless of your head of funding. Therefore, choose and invest, so the funds take your business to the next level.
MSMEBlog discusses issues with finding suitable funding sources for MSMEs and guides them with the procedures to acquire the necessary financing. Visit MSME Blog website for more information on MSME finance.
