subject: E-commerce Business - What Are Your Financing Options For Growth [print this page] E-commerce businesses present great opportunities to entrepreneurs as they do not require much initial investment. After a few months they do need additional funds to grow and extend operations. Bankers charge online businesses very high loan interest. Qualifying criteria are so tough that internet based businesses are often unable to qualify at all. Pledging securities is required; and with the excessive rate of interest the loan becomes a high risk undertaking.
Fortunately, small e-commerce businesses have recourse to seek other funding sources to support their business growth. Following are some such loan options.
Getting funds from friends and family
If your financing needs are in the $10,000-$50,000 range, look into procuring it by seeking a loan from your family and friends. Have a good business plan at hand, so you can illustrate how the money will be invested and the rate of return you expect to see in the next 1-5 years. This will make the investors more enthusiastic and you will also be comfortable explaining your goals. Do this even if you are very close to the potential financier.
If you feel comfortable, get the loan in phases. Make sure you give an account of how the previous loan installment was applied to grow the operations before the next installment arrives.
Contacting angel investors
Find an angel investor if your funding needs exceed $100,000. Angels make investments in new businesses to help sustain their expansion in exchange for equity. They normally seek out businesses that have been in existence for a year or two or at least have viable ideas with a powerful business strategy and team. There are a number of online portals where entrepreneurs network with angel investors. Ask questions to understand the type of arrangement the angel wants. Before taking the investment determine the kind of businesses they have invested previously, the terms and conditions, repayment time line or the amount of equity they might expect you to divest, etc.
Incorporate the business to offer private placement
Small businesses incorporate to get tax benefits, guard against personal liabilities, and to acquire funds for growth. Businesses may extend private placements, also called non-public offers, so they have control over who joins the board and over their expectations. Non-public offers allow small businesses to raise funds in a short time. They also lower the risks associated with a single investor furnishing all the money and being placed in a powerful position over the business.
Consider a merchant cash advance
Small businesses have another financial source. It is merchant cash advance (MCA), also called business cash advance. MCA providers purchase a percentage of your future credit card receipts at 15%-50% discount. The amount of advance is dependent on the monthly volume of your credit card sales, and longevity of the business. No pledging of securities is expected and documentation demanded is minimal. The approval rates are high and the advance is processed in about 3-7 days. MCA is perfect for businesses that need a quick loan that can be paid back within a year.
Small business owners should take advantage of the various opportunities open to them for funding their business plans. Irrespective of the loan solution you go for, be certain that you understand every aspect of the transaction. Don't sign any agreements or accept loans unless you are thorough about the terms of repayment.
