Venturing an ecommerce start up is no different than any conventional commerce start up. The rules applied are the same, particularly with regards to finances. You need to make investment (substantial or not) to start your business before expecting any returns. Many a time it happens that despite having a really sound business strategy, one lacks the finances to launch it. How does one acquire those finances to fuel one’s vision without compromising on most part? Below are a few of those ways
Crowdfunding websites are frequented by investors looking for business startups asking for startup capital. You need to keep in your mind while campaigning to finance your business that you not only have a monetary goal but also a time goal. Don’t forget to add PDF document detailing your business plan in the description. You can surpass your monetary goal far too easily and early if you do your crowdfunding campaign right.
2. Venture Capitalist Investment
Of late the VCs (Venture capitalists) have been frugal with their purses and start ups haven’t been receiving much funding from them. In 2016’s first quarter, it was found that venture capitalists spent 25-percent less than the previous quarter . Approaching the VCs should be done with complete preparedness, your plan business plan should be detailed enough to tell them what you expect your brand to earn in its first year and in 5 years and so on.
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3. Personal Savings
This is a very safe option to go with as it has no complication and costly application, no interest payment and you don’t have to lose stake in your business. Personal savings are also called as bootstrapping. This is the preferred option when the returns on your money are low and borrowing cost is high. You also have the option of borrowing from your retirement plan (401(k)) but making withdrawal from it before 59.5 years of age can lead to steep penalties. Also it is advisable to not dry your rainy day funds.
4. Angel Investors
People who invest in business without actually concerning themselves with the said business are termed angel investors. They invest money in the business on the promise of a return on investment in a specific period of time. Most commonly friends and kin are angel investors but it is up to you to put your relations in jeopardy should your business fail. To avoid such predicaments you need to keep funds aside every month to repay the angel invested money.
5. SBA Loan
With the current credit crisis, banks are hesitant in taking chances with their money and thus have made the loans provided by the US Small Business Administration a hot commodity. With banks reluctant to take any chances with their own money in the wake of the credit crisis, loans guaranteed by the U.S. Small Business Administration have become a hot commodity. The loans by the US SBA are guaranteed from participating banks, who urges the participating banks give loan to the qualified applicant. But this requires a huge amount of paperwork also the rates and terms are subject to the type of business that’s seeking the loan.
6. Friends and Family
This is one of the easiest ways to acquire finances for your e-commerce start up. But this also may create a huge amount of stress in your personal life. The biggest mistake one makes is approaching the friends and family without a formal business plan in plan in place. You must be prepared with financial projections, the return of investment time window for them before proposing to go in business with their money. This will also establish the fact that you take their money very seriously. You also have to be clear on the kind of investment you are asking for, will it be equity? Will it be a loan? Also, do not forget to clearly state the risk involved.
7. Credit Cards
If you own several credit cards it is one of the easier ways to raise funds. The con of this method is that you have high rate of interests to pay and you can only make the minimum payments with your business’ cash flow. You will have to pay the cards for a significantly long time at a high cost. Other risks include taking hits to your credit score if you fall behind on your payment. If used responsibly though, the credit card can get you extended period for accounts payable to shore up your cash.
8. Home Equity Loan
This option should only be brought under consideration if you have more than 50% of home’s value as equity (i.e. outstanding loan lower than half the house’s market value). A good credit rating can get you a reasonable interest rate keeping your house as collateral. At present rates can be anywhere between 4 and ten percent.
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