6 Ways to Fund an E-Commerce Business

Whether you’re an existing business owner scaling up or a new entrepreneur starting from scratch, you’ll need to secure a certain amount of capital to assist you with effectively running your business and keeping it afloat. From merchant cash advances to crowdfunding, e-commerce funding presents endless options to transform your ideas into actionable business plans. Below, you’ll learn more about what it is, how it works and the most popular options for e-commerce funding.

What Is E-Commerce Funding?

E-commerce funding provides the necessary capital to online businesses and merchants. Lack of capital is the top barrier to e-commerce growth and success. Securing the necessary capital allows businesses to grow exponentially and cover inventory, marketing, and operational expenses.

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In 2019, Small Business Trends reported that the failure rate for e-commerce businesses stood at 90% after 120 days. The analysis was conducted by Marketing Survey, which surveyed 1,253 owners of failed startups in the U.K. Failures were primarily attributed to poor online marketing performance and invisibility in online search, and e-commerce funding is essential to achieve these milestones.

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Operating and growing a successful e-commerce business requires a sound long-term strategy. Forbes recently reported that:

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• In 2023, experts expect the e-commerce market to reach $1.1 trillion in sales in the U.S.

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• In 2023, 16.4% of retail purchases are predicted to be conducted online in the U.S.

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• By 2026, The e-commerce market will total an estimated $8.1 trillion.

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Funding shouldn’t be a roadblock to starting an e-commerce business. It’s necessary to secure adequate financing to order inventory, maximize the supply chain, advertise online and offline and develop products. Fortunately, entrepreneurs have many options to secure e-commerce funding.

How Does Funding for E-Commerce Businesses Work?

Navigating financing options can be complex and confusing when figuring out how to get e-commerce funding. Determining which funding option is best depends on the business's unique needs. First, it’s helpful to learn the pros and cons of each type of funding, including the most popular types of e-commerce funding: 

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• Merchant cash advance
• Venture capital
• Grants
• Traditional bank loan
• Bootstrapping
• Crowdsourcing

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Below, we’ll learn more about each of these options.

The 6 Most Popular Ways to Fund an E-Commerce Business

Funding for e-commerce is easier to secure than you might initially think. Let’s discuss the six most popular ways to fund an e-commerce business.

1. Merchant Cash Advance

A merchant cash advance is often referred to as a business cash advance, but it isn’t a business loan. Instead, a merchant cash advance offers an advance on future revenue today by taking a small percentage of future credit card sales in place of interest. Getting approved for as little as $2,500 or as much as $500,000 upfront can take a day or two.

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Merchant cash advances can be a viable financing option for startups that need funding fast or have a high volume of credit card sales. Businesses not qualifying for small business loans may decide upon this quicker option.

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Before agreeing to any terms, the borrower should understand that most merchant cash advances are unsecured and don’t follow the regulations that traditional financial institutions do. This means that fees are higher and payments are taken more often, making merchant cash advances more challenging to pay back than other options. Instead of interest rates, merchant cash advances come with factor fees that can be as low as 1.5% or as high as 38%. 

2. Venture Capital

Other startups turn to venture capital funding—venture capitalists are a collective of investors that take an equity stake in exchange for flooding money into promising business ventures. In other words, the venture capitalists become part owners of the business by taking a small percentage of the company. The percentage rate they take depends on the business prospects, how much they're investing and the bargaining skills of the entrepreneur.

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Venture capitalists also look at the geography, stage of business growth and industry to determine viability. For example, a tech company stirring up talk in Silicon Valley is bound to get the attention of venture capitalists.

If the startup is viable, venture capital can grant enough money to expand the business exponentially. This can mean anything from hiring new workers to opening up new satellite offices. Venture capitalists don't fund ideas, but they support businesses that have shown potential and evidence they're making a mark in the industry. For those starting from scratch, venture capital isn’t the right funding option.

3. Grants

Grants are a type of e-commerce funding that companies aren’t expected to pay back. This funding option comes without interest, expense payments or stringent stipulations, making them attractive to companies that can maintain full control of their business.

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How attractive grants are also means that many businesses apply for them each year. For those pursuing e-commerce grants, be prepared to invest time and effort to get through the process. The Department of Commerce provides a comprehensive list of grants to help businesses get started. 

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Businesses can also make their grant searches industry-specific. For example, the National Science Foundation offers a tech grant called America’s Seed Fund, which provides over $200 million in research and development financing to about 400 startups annually. The program is government affiliated. 

4. Bank Loans

According to Reuters, banks saw a substantial increase in nearly every lending category in the final quarter of 2021, and bank loans are continuing to drive business growth.

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The positives of business bank loans include low-interest rates, usually lower than other types of loans, flexible payment terms and lack of collateral required. The downside is that the application process can be lengthy due to the documentation needed to meet eligibility requirements, such as having a strong business plan in place. It can interfere with the ideal timing of starting your business and the amount you receive may be lower than funding alternatives. 

5. Bootstrapping

In the true nature of DIY, bootstrapping is an e-commerce funding that involves using your own resources to jumpstart your business. It’s often simpler because you set goals that you control around saving money to get your company going. 

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What are the benefits and risks of bootstrapping? You’re able to think outside of the box to innovate your product and service without debt or fear of incurring it. You aren’t distracted by unnecessary expenditures that might have diverted your funding allowance. It can be stressful as you try to find ways to make money to fuel the savings you need. However, bootstrapping is also about making the most of the resources at your disposal now, such as a friend lending you space for inventory storage or using your basement as an office. 

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Many business ideas have little to no cost when it comes to getting started, so bootstrapping is ideal for those who want to avoid debt and are natural networkers.

6. Crowdfunding

Opting for traditional loans or having others owning a portion of your business and bootstrapping your business may not be appealing to you. Crowdfunding may be the best e-commerce funding alternative. Businesses pitch their ideas on dedicated platforms for crowdfunding to raise funds. Your friends and family can contribute funds, as can existing customers or others who believe in your vision or product.

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Crowdfunding comes with no strings attached aside from the ones you determine since many businesses and creators like to provide incentives for tiers of funding. You retain full control of your business and aren’t bound by exorbitant fees. Crowdfunding can also help with brand visibility as you’re engaging with your target audience on the platform.

Many successful businesses have used crowdfunding campaigns to get their start, but without the proper investment of time and research, many also fail. Forbes reports that the crowdfunding market is estimated to grow by $200 billion by 2025, growing annually by over 15%. Forbes also indicates that crowdfunding platforms tend to even the playing field for entrepreneurs of all backgrounds. Popular crowdfunding platforms include Kickstarter, Indiegogo and GoFundMe, for example.

Most Popular Funding Options for Online Entrepreneurs

It’s understandable to be concerned about how to get e-commerce funding. However, entrepreneurs should keep in mind that raising e-commerce funding can be confusing and take longer than anticipated depending on their chosen option. The most popular crowdfunding options for online entrepreneurs that we discussed include:

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• Merchant cash advance: This fast funding option offers an advance on future revenue upfront by taking a percentage of future credit card sales transactions.

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• Venture capital: Venture capitalists provide significant money to the company in exchange for equity, taking part ownership.

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• Grants: Though the application process can be lengthy, grants provide funding without requiring you to pay it back.

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• Traditional bank loan: Bank loans are typically lower interest than other types of loans, such as personal loans, but you have to pay them back over time.

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• Bootstrapping: Use DIY to your advantage by making the most of your resources, such as turning your basement into an office.

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• Crowdsourcing: Make use of platforms such as Kickstarter or Indiegogo to raise money to start your business while you retain control over your business and invest in your customers instead.

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These are among the most popular options for funding for e–commerce. Before you decide on the funding option that is right for you, check your business plan and weigh the pros and cons.

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Investing in an E-Commerce Store Management Service

Interested in investing in the e-commerce space but not keen on running your own store/s? Here at Wealth Assistants, we offer Amazon Marketplace Management, and Shopify Brand Management.  

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With both opportunities, you are the business owner while we are your operational partners. You fund the business and collect the profits while we manage supplier relations, quality checking, warehousing, shipping, product listings, and customer support. We do 95% of the work on your behalf. Learn more about our process here. 

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Getting Funding 

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Should you need or desire capital to retain our services or for working capital for your e-commerce business, we have reliable sources that can provide these funds to qualified borrowers. Many sources offer 0% interest credit lines for 12 to 18 months and others take less than perfect credit.

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At Wealth Assistants, you may not need to come out of pocket to secure one of our services, as we understand the importance of leverage. Since launching we have secured joint relationships with funding partners that work alongside our clients to get them the working capital needed, so we can scale and you can grow.

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