ecommerce business

Launching a small business is fraught with many challenges. For the entrepreneur who is trying to succeed in the world of eCommerce, it’s important to be aware of what some of these challenges may be at the outset so that some of the biggest potential roadblocks can be navigated successfully.

No matter what kind of small business you own, it’s vital to be aware of as many sources of small business funding as possible.

A small business that has gained increasing favor with entrepreneurs, eCommerce is the practice of marketing and selling a product or service exclusively through the Internet, without any kind of a brick-and-mortar storefront.

With the coronavirus and its attendant fears and government-imposed restrictions on indoor capacities, a lot of brick-and-mortar businesses are struggling to survive more severely than they have in decades. But consumers still need goods and services, and eCommerce fills both a niche for the consumer while at the same time keeping the entrepreneur in business unencumbered by lockdowns and restrictions whose end is indefinite and unpredictable.

First of all, it is possible to run an eCommerce business on a manageable budget. You may have a very clear idea of what product you intend to market, but even if you don’t, there are myriad ideas for things to sell online. Start by identifying a need that consumers might be seeking an answer for. Research different niches and find out everything you can about that niche.

Will your eCommerce business offer digital or physical products or services? What are other businesses in this niche are doing right now? Identify something you might be able to do better than other competitors in this market so that your business will stand out and stand apart from the others.

Draw up a business plan that includes a company name, the problem your business is trying to solve, a business vision and mission statement, and both a short- and a long-term plan. And, of course, come up with a budget to figure out how much you’ll need to cover the operation of this eCommerce business.

There are a wide range of social media platforms where the owner of an eCommerce business can market products and services, and online platforms such as eBay and Amazon are worth considering. Even with the relatively inexpensive entry costs in this type of business, the need for more capital will be inevitable at some point.

eCommerce sales were up 3.9 percent between 2017 and 2018, according to the U.S. Census. There’s less overhead associated with running an eCommerce business than a brick-and-mortar operation, but that still doesn’t eliminate the likely need for additional funding.

Some of the funding options for an eCommerce business include:

Peer-to-peer loans

Peer-to-peer lenders diverge from traditional lending sources in that they work with individual or corporate investors who provide funding for business and consumer loans. Peer to peer personal loans are offered directly to individuals without the intermediation of a bank or traditional financial institution. Online lending platforms fund borrowers via institutional lending partners. Also referred to as marketplace lending, peer-to-peer (p2p) lending is an increasingly popular alternative to traditional lending. Borrowers and lenders can both benefit from this more-direct lending system.

In p2p lending, one party lends money to a business, with the promise of receiving a sizable return for doing so. When a business seeks a p2p loan, it accesses a website, requests a loan, and then investors are permitted to fund the loan and also share in the interest payments.

Just as a conventional lending institution would do, a p2p platform will investigate the finances of the small business owner who is seeking a loan. Investors will want to know the borrower’s credit score, his history of paying bills on time and his or her debt-to-income ratio before deciding whether the borrower’s financial statements are in good enough order to merit funding the loan request. Then the loan–which sits on the platform for two weeks (or less) awaiting investors–is assigned a score based on its level of risk. Investors in a p2p loan can offer to pay as little as $25 of the loan. One p2p investor could conceivably choose to bankroll an entire loan, as well. Every time a payment is made, the investor receives his/her of the interest payment and the principal payment back in his account.

Lines of credit

When a lender provides pre-approved funding with a maximum credit limit, that is known as a business line of credit. If the borrower is approved for this line of credit, funds can be accessed whenever they are needed until the established credit limit has been reached.

Because the borrower is only paying interest on the amount that he or she withdraws, a business line of credit can be advantageous for business owners who are uncertain of the amount of funding they will actually require, or when they might need it.

The drawback to a line of credit for business financing is that the loan will be at a rate that might be considerably higher than other types of loans. How costly that would be is heavily dependent on the amount of funds the entrepreneur ends up using.

If the owner of an online business needs to establish a favorable credit history, a business line of credit could help him or her do that.

A seasonal business might favor a line of credit because its cash flow tends to be less consistent from month to month. Manufacturers, service companies and contractors are other common candidates for lines of credit, which help a business owner meet his working capital needs or bonding requirements without enduring a new application process each time with the help of a revolving line of credit.

Traditional bank loans

Whether a small business owner qualifies for any type of commercial loan from a traditional bank is going to depend heavily on how credit worthy that entrepreneur is. The loan applicant is required to present documentation showing the lender that the business is generating cash flow that is consistent. The bank will be looking for balance sheets to gain assurance that loan will be repaid in full on time.

If a business gets approval, the interest rate it will pay will be in line with the prime lending rate at the time the loan is issued. Before the loan application, banks usually ask for monthly financial statements from the borrower during the entire length of the loan and often require the company to take out insurance on any larger items purchased with funds from the loan.

The better a business owner’s credit score, the more likely that person will be to get approved for commercial financing. The three major credit bureaus — Equifax, Experian and TransUnion — will fulfill requests for an individual’s credit score once a year. Other factors that a lender will consider before deciding on approval include how long the borrower has been in business, how much revenue the company generates and whether the borrower’s cash flow will enable him to meet the repayment terms. Since as many as one-fifth of new businesses don’t make it past Year One, lenders require a company to be at least six months to two years old and will also look at how long the business has had a bank account when mulling approval.

How much debt a small business has when applying for a commercial loan will also impact the likelihood of getting approved. Most lenders require a debt-to-income ratio of 50 percent or lower. Lenders are less likely to sign off on a loan to borrowers who are already trying to pay off other loans.

SBA Loans

The U.S. Small Business Administration (SBA) offers commercial financing backed by the SBA through its SBA 7(a) loan program. The most common type of SBA loans, an SBA 7(a) loan assists businesses in the purchase or refinance of owner-occupied commercial properties up to $5 million. This loan also gives the business owner a chance to borrow funds for working capital.

These loans are suited to assist businesses that are unable to secure credit anywhere else. With an SBA (7a) loan, the borrower can purchase land or buildings, build on new property or renovate existing property as long as the real estate will be occupied by the owner. Through an SBA (7a) loan, an entrepreneur can borrow up to $5 million through an SBA-affiliated lender. The maximum allowed interest rates for the program are based on the Wall Street Journal Prime Rate plus a margin of a few percentage points. Interest rates can be fixed, variable or a combination of the two. Loan terms for 7(a) loans that are used for commercial real estate may be as long as 25 years for repayment. Each monthly payment would be the same until the loan is fully repaid.

Backed by the U.S. Small Business Administration, this type of financing can assist in the purchase or refinance of an owner-occupied commercial property. These 504 loans are actually a hybrid form of financing: One loan coming from a Certified Development Company (CDC) for up to 40 percent of the loan amount, and one loan from a bank for half the loan amount or greater. Low down payment requirements make CDC/SBA 504 loans ideal for growing companies that might not have more than 10 percent to use as a down payment.

A CDC/504 loan is for either 10 years or 20 years. Borrowers get a fixed rate rather than the prime lending rate. Applicants will be required to show the lender a business plan, exhibit proof that they are capable of managing a business and present projected cash flow data–all to assure the lender that the loan is likely to be repaid without complications.

Online lenders

When a quick infusion of cash is needed without the burden of exorbitant interest rates, a short-term loan might be just the right kind of financing for a small business owner’s working capital needs. Short-term small business loans usually range from three to 12 months, and they are more likely to require collateral than loans of longer terms, but for a borrower who is relatively certain that he or she will be able to pay back the loan on time, a short-term loan can save businesses money. Short-term loans are widely available, but are targeted toward consumers who are good candidates to pay the loan off.

Although the business credit requirements are not as strict for short-term loans as they are for regular term loans, the frequent payment schedule may be burdensome for someone in a new business without a lot of cash flow at that moment. With fewer requirements than longer-term loans, short-term loans from online lenders may be easier to get approval than some other types of loans.

Choosing to apply for a short-term loan comes with the expectation that you might have to repay it over just a couple of weeks. If you have an installment loan, you have up to six months to pay it off. A short-term loan application is completed online and normally takes a matter of minutes to be approved.

Rapid processing is one of the main attractions of a short-term online loan. Sometimes approval could even come the same day the application is placed. In addition to fast approval, other advantages of short-term online loans for working capital include paying less interest, the chance to improve a bad credit rating, and flexibility.

Venture capital

A source of equity funding that is not usually a personal associate of the entrepreneur, venture capital is usually generated by a company, rather than an individual.

Companies that specialize in investing in startups are venture capital firms, and they will take chances on new companies that they believe to have substantial potential for long-term growth and big profits. Sometimes the assistance provided by a venture capital firm does not come in the form of money, but rather in the form of counseling and expertise.

As is the case with angel investors, venture capitalists have a stake of some kind in the business, and therefore have a say in the decisions that are made within the company. How much equity a business owner is comfortable with giving up, and the amount of valuation the entrepreneur is willing to establish, helps determine whether an agreement with a venture capitalist or venture capital firm will be forged.


Tapping into the combined resources and contributions of friends, customers, family and possibly individual investors by using social media and online platforms set up for this specific purpose is called crowdfunding.

The process of crowdfunding entails collecting small amounts of capital from a large base of contributors, accessing a sizable potential pool of resources. Crowdfunding is open to anyone. The business owner who seeks to raise capital through crowdfunding is essentially turning over the process of an application to a large group of people, rather than depending on the decision of an individual lender. Crowdfunding sites generate revenue from a percentage of the funds raised.

The advantages of a crowdfunding approach to raising working capital include its broad reach, the ability to present one’s business in a positive light to potential investors, the attention to one’s business derived from public relations and marketing on a crowdfunding platform and efficiency. Crowdfunding helps a business to streamline its fundraising efforts with a single profile that is comprehensive and into which the entrepreneur can funnel all prospects and potential investors.

Crowdfunding can be based on donations, rewards or equity. A funding effort that is based on donations comes with the understanding that there is no financial reward to the donor to a crowdfunding campaign. A campaign based on rewards would give something back to the contributor, such as a product or a service provided by the business that is seeking the funding. Equity-based funding campaigns invite contributors to become part-owners of the business by exchanging capital for equity shares. As equity owners, the company’s contributors get back a financial return on their investment and also receive a share of the profits in the form of a dividend or distribution.

Other sources to consider

An entrepreneur who has decided to take the plunge and start an eCommerce online business may also fund the startup using personal savings, provided he or she has enough working capital not to eat into vital funds needed to live; or the assistance of friends or family, who can either provide a loan or purchase equity in the online startup.


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