The Basis of Financing and Investing In E-commerce – 2021

5 Oct | 7min Read | Guest Post

The Basis of Financing and Investing In E-commerce – 2021

Overview

Like any other business, you will need financing for your e-commerce platform. You might have started the company from personal savings. But the more you grow, the more you may need money to keep operating.
Our article explores e-commerce financing and investing in a little more detail.

E-commerce Financing Options

Let’s look at some financing options for your e-commerce platform.

1. Bootstrapping or Personal Savings

If you are diligent about saving, you have some money put away. You can use such cash to finance your e-commerce business. The advantage is you do not borrow from anyone.
There are no high-interest rates or timelines that you need to adhere to. It also frees you from diluting the ownership of the business with creditors.

2. Borrowing From Family and Friends

Family and friends can bail you out during tough situations. You can negotiate payment terms, allowing for more flexibility. Depending on how close you are, they will not even charge you interest.
But, remember the mantra, money and friendship do not mix. Be diligent about repaying. Otherwise, you could strain the existing relationships.

3. Loan Facilities

There are various loan options available for e-commerce owners. They include:
  • Traditional bank loans may need collateral. You can negotiate for reasonable interest rates if you have excellent credit scores.
  • Home equity loans that use your house as collateral.
  • Small business administration (SBA loans) for those living in the US. The administration will act as your guarantor when applying for loans.
  • Online lenders mainly target small businesses. Turnaround time is quick, but you may need to show proof of strong sales performance.
  • Credit card facilities give you quick access to cash. But, the interest rates the lenders charge tend to be high. Prepaid cards that report to credit bureaus will share your repayment history. Delays or skipping payments will impact your credit score.
Do note, the best way to get good terms is to have a good credit score. Keep a close eye on your report by requesting copies from the credit reference bureaus. Carefully go through the documents to identify any errors.
It can be difficult if you do not know what to look for. That is why it is important to get the service of credit repair professionals. They can identify and rectify any errors. The credit repair professionals can also assist with things like removing paid collection accounts from the credit report
Are we saying that you cannot qualify for a loan with a poor credit score? The answer is no. Some lenders will give you financing. But, they will need collateral and will charge higher interest rates.
Credit management service providers monitor your credit report. You get advice on any inaccuracies. Best of all you can ask for the report anytime you need it, daily if you so wish.

4. Venture Capitalists and Crowdfunding

A venture capitalist will invest in your e-commerce business. But, they will need equity in return. It makes them very picky about who they support because they expect ROI. An e-commerce business with high growth potential can qualify.
Crowdfunding shares a lot of similarities with a venture capitalist. Supporters make financial pledges towards business owners. The onus is on whoever is seeking financing to show the viability of their project.
One crowdfunding model is peer to peer lending. You get unsecured financing and will pay back with interest.
Another type is equity crowdfunding, where you sell a part of the business to investors. Other models are profit or revenue sharing, debt securities, and rewards-based crowdfunding.

Investing In E-commerce: Why It Makes Sense

The popularity of e-commerce has grown over the years. Investing in e-commerce is a viable business option. Some reasons why you should think about it include:
Growth Potential
The number of people using online platforms continues to rise every single day. Research shows that by 2024, e-commerce will account for 21.8% of global retail sales. So why not get a share of the pie.
The popularity could be due to the fact that e-commerce is convenient. Shoppers also get access to a wide pool of suppliers.
The Corona pandemic also had a role to play in the rapid growth. More people turned to online platforms to shop for products or services. It was an effective way to adhere to social distancing calls. The quarantines at the beginning of the outbreak also left little choice.
Setting Up Shop Is Easy
Setting up an e-commerce platform is easy and inexpensive. You cannot even start to compare the cost with what you would spend on a physical store. There are tons of options, including Magento, Bigcommerce, Woocommerce, and Shopify.
E-commerce models like Dropshipping don’t even require you to have inventory. Your role is that of a middleman between suppliers and customers. As such, you receive their orders and forward them to the supplier. The supplier does the fulfilment role, including shipping the product to the buyer.
Tons of Business Opportunities
E-commerce provides you with so many business opportunities. These include:
  • Business to Business (B2B) model sells goods or products to other business
  • Business-to-consumer (B2C) targets the end consumer. It removes the need for intermediaries or retailers. Customers come to the website, place the orders and receive the goods from you.
  • Consumer-to-consumer (C2C) is the model for marketplaces like Amazon and eBay. Individuals sell to each other through third party sites.
  • Consumer-to-business (C2B) defines businesses like freelancing. Individuals offer their services to companies for a price.

Final Thoughts

The e-commerce platform has tons of opportunity for anyone willing to take the risk. There is growth potential due to easy access to a broad customer base.
We have shared three reasons why investing in such a business makes sense. Our article has also looked at sources of financing that can get your business off the ground.
Do note, though, that the online platform is very competitive. Your product or service offering must be unique. It should also provide a solution to a need or gap that exists in the market.
It pays to avoid areas that already have too many players. Look for a niche area of specialization.
And, invest in proper marketing for high conversion rate optimization. Remember, you want everyone who visits your e-commerce platform to buy.
Oct 9th, 2021|
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