post by:
Donna Cohen
If you’re a businesswoman with an eCommerce business or are planning to launch an eCommerce business, then you know how difficult it can be to get funding. Traditional banks are strict when it comes to eligibility and even if you get the loan you need, they control your monthly spending and what you spend it on. Lenders, investors, and factors can give you better options. They’re more relaxed in their guidelines and have plans that can be tailored specifically for your business.
What Is eCommerce Funding?
eCommerce funding is any type of financial support that helps a business start, maintain, or grow. Types of funding available to you vary depending on preference, eligibility, and the company. If you are a business who is struggling to pay the day-to-day expenses, short-term loans may be worth your consideration. If you are looking to expand your business, long-term loans are great for larger expenses. There are several types of funding alternatives and programs specifically tailored for women entrepreneurs.
Crowdfunding
Crowdfunding is a group of people coming together to fund a specific project. There are investors and businesses. Investors will loan their money to the individual or business in hopes of generating revenue. This is not always the case, and is a risky strategy. Instead of reviewing the person or business credit history, they listen to your pitch. You have to market the goods to them. So, it has to be unique if you’re going to find investors that will take a chance on you.
Pros
- There’s less risk for businesses
- You keep your equity and rights to your company
- Your campaign could be successful with all the experienced help
Cons
- Your investment might fail
- There are fees for being successful
Peer-To-Peer Funding
Peer-to peer funding is a group of people coming together to fund a particular project. There are lenders and borrowers. The lenders review your credit and business history. Once approved you will pay interest on the borrowed money, much like a regular loan. There are numerous online platforms that help match lenders with borrowers. It’s a great alternative to traditional banks and lenders.
Pros
- The returns are higher
- Easier access to the source of funding
- Lower interest rates
- Quick process
Cons
- It’s a high credit risk
- There is no government/insurance protection
Accounts Receivable Factoring
Accounts receivable financing is where you sell your accounts receivable to a factoring institute known as a “factor.” They will take on the debts owed to you as a business. You sell them at a discount. Depending on the value of your assets, it may or may not be worth moving forward with this type of financing. Nonetheless, this is a great path for your business if you need cash quickly and want to focus on other parts of your business.
Pros
- Quick cash
- Will take on riskier accounts
- Not picky about your credit history
- Tailored to your business and its unique value
- Requires less maintenance that most
Cons
- The discount may be higher than planned
- You may end up with a less-than-trustworthy factoring institute. Do your research, ladies!
- It’s harder to qualify for accounts receivable financing than other types of loans.
Merchant Cash Advance
Merchant cash advances supply you with a lump sum of money to go towards your eCommerce business. That sum is paid back with future sales. A percentage is taken out of each credit and debit card transaction. With lenient requirements, it’s easy to get approved. If you have a reasonable credit score and have been in business for at least three months you have a high chance of getting the money you need.
Pros
- You get to control what you use the cash advance for
- Your credit score is not always a factor for approval
- No collateral needed
- No monthly restrictions on spending
- Quick approval and payment
Cons
- Credit card processors are mandatory
- It’s not government regulated
Business Lines Of Credit
Business lines of credit are used for short or long-term solutions, especially for eCommerce businesses that need revolving credits. More money becomes available as you pay it off. It’s useful for day-to-day expenses as well as large investments. The interest rate they offer you depends on your credit history. So, if you have a good credit score, this would likely be a good option for you. As long as you pay on time, you’ll have steady cashflow at your fingertips.
Pros
- Only charged interest on the portion of money you use from the loan
- Lower interest rates
- Easy access to cash
Cons
- Long application process
- Low limits
- Some have a required minimum
SBA Loans
SBA loans are for eCommerce businesses that are both starting or growing. They can be for short-term or long-term loans. They are wonderful for those who do not qualify for other funding. They often have lower interest rates, however, they do give you limits on monthly spending and what you can spend it on. Nonetheless, some give you access to mentorship, which can be well worth the sacrifice.
Pros
- Flexible standards
- Long repayment terms
- Wide range of loan amounts
- Set interest rates
Cons
- Long approval process
- Possible down payment
- · You have to exhaust other options before applying
Commercial Mortgages
A commercial mortgage is money given to you so you can buy business property. The property itself acts as the collateral, unlike commercial loans which are secured against your personal assets. Since businesses are riskier than residential properties, they often have higher interest rates. But this is a great option if you’re in the market for a new building to house your eCommerce business.
Pros
- Since there is collateral, the interest rates may be lower than a business loan
- Interest is tax-deductible
- May rise in value
Cons
- Complex process
- If you fail to make your payments then your property is on the line
- Large deposits
Business Credit Cards
Business credit cards are great for building up your inventory or paying day-to-day expenses. It’s useful for starting up your eCommerce business and maintaining it, too. Your chances of approval are high, as long as you have a reasonable credit score. You don’t even need to present a business plan. The process is quick, so you can start developing your business right away. Just watch out for interest rates.
Pros
- Quick process
- Low interest rates
- Easy application
Cons
- Low limit
- Credit score determines your approval
Women’s Small Business Grants
There are a lot of organizations who offer grants to small businesses and women entrepreneurs. Although, securing the grant can be competitive. You’ll need to pull out all the tricks in the book to convince them that your business is worthy of their money. A lengthy application process explaining why you need the money will be the clincher. The great part about grants? You don’t have to pay them back, which is why they’re so sought after. We can hear the pen racing across the paper already.
Pros
- You don’t to pay back the money given to you
- It’s a great boost for your business
- It’s competitive
Cons
- It’s difficult to obtain
- Lengthy application process
- It’s competitive (yes, we know it’s on both lists)
Which Type Of Funding Is Right For You?
Every eCommerce business is unique, therefore you will need to consider all your options before applying. Ladies, once you prepare your budget, determine how much you’ll need in funding and how long you’ll need it. If you need help paying for inventory and payroll, choose a loan that involves a revolving credit, so you have access to cash all year. If you are looking to purchase new equipment or remodel the office, then consider something long-term with a higher limit, such as equipment loans. Now, go out there and get that funding!
How Do You Apply?
Gather all the necessary documents and check your credit score. This information will determine where you should apply, and give you a good idea of your approval rate. Research the lenders, investors, factors, and programs. They each offer their own plans, interest rates, and repayment terms. Find the one that feels right to you. Don’t be afraid to reach out to ask questions before filling out the application. They’re always happy to help. They want you to make money, after all. Get ready, ladies, your eCommerce businesses are about to boom!