E-Commerce (Electronic Commerce) involves buying and selling goods and services via the internet. There are several costs involved in carrying out this type of business to become very successful. There are several ways for individuals to finance the growth of their e-commerce business which we would examine below.
Sources for financing an e-commerce business
Every e-commerce business owner should aim at getting maximum sales and profits on his goods over the internet. E-commerce has been a great choice for small business owners because it cuts out the costs of owning a physical store and even connects you to the billions of people that make use of the internet. Receiving loans is one of the methods a business owner can employ to gain more in his business. Several types of business loans include:
- Term loans:
Accepting loans is one of the ways to fund your business if you’re quite sure your business would make a profit in the coming years. Companies or individuals give up loans from $10,000 to 1 million dollars on which interests will be added when returning. The interest rates vary from 6% to 30%. It is great when you’re looking into a long term business that will make massive profits and also for short-term businesses that are definitely promising. The loan terms are usually within a year and can last up to 10 years.
But in some cases, the longer you take, the higher the percentage interest increases
- Accounts Receivable Financing:
This is mostly gotten when you have long outstanding invoices and when needs arise for short-term financing. The business owner can be loaned as much as 90% of the total outstanding invoices. This loan will help to pay for all the bills. A small problem is that you have to refund within a month to three months which is much shorter than repayment for the term loans. This option is more expensive as you’re expected to pay a certain amount for processing (processing fee).
- Merchant Cash Advance
This method of finance sourcing delivers between $5,000 and $500,000. It is best for new e-commerce business owners who receive a lot of sales to be able to pay back within a week to three years. After making a lot of profit over time, you would be returning the borrowed money with some interest from your sales. This is a much better option for newbies but mostly depends on the individual lending the money.
Other financing options include payability and business credit cards
Indeed, borrowing for your business seems like a very risky step which may render you penniless after all the struggle, we can all agree that the money to fund your business wouldn’t land in front of your doorstep. You can start up some businesses with no many funds and watch it grow slowly. What about larger businesses that require massive financial input?
What is the best period to utilize outside financing?
The best way to utilize outside financing is when you’re looking to promote your business to increase your sales and earnings. If you use this financing method to settle bills and pay debts because of poor business plans or other reasons, you would end up going bankrupt and would likely spend some serving time. You couldn’t settle the bills with your job, so sourcing for financing to pay bills is creating another bill, a very large one. Below are the best periods to consider outside financing.
- Verified Product
Verified product means your product has been tested and is trusted by customers. A non-verified product may never make sales in the market. You may try to convince some friends to patronize you, but most friends would depend on you to give them as a free item. If you’re doubtful of your product outcome in the market, do not collect a loan. Instead, try to sell your product to strangers and listen for Proven Amazon Course.
- Customer Demand
When customer demand is very high, this is one of the best times to utilize a loan. It would help you deal with your customers faster and receive profit faster, which you can later use to pay back. When the customer demand is high and you get so close to scalability, it is advisable to get financing because you would be able to produce more and sell faster.
- Opportunity Cost Exceeds Financing Cost
This may look tricky at first, but it is quite simple. When running an e-commerce business, take a look at how much you have to lose if your business does not go well, and compare it to how much you need to finance your business. If the financing cost is higher, it is wiser to finance your business because the probability of your nosiness rising depends on how much you put into it and how good your product is.
Taking a look at these outside financing methods and the right time to use them, you can begin to make decisions that would take your business to the next level.