The Ultimate Guide for E-Commerce Financing
E-Commerce financing can be understood as a funding option that an online business owner can opt for in order to carry out its functions effective and efficient growth of its business. E-Commerce financing in its most basic form is used to cope with the payment obligations and to stabilize the cash flow of a business. E-Commerce financing options can be of use to both the ones that are already in market and the one who are yet to be launched in the market. Let us now understand the participants that are involved in the process of e-commerce financing. There are mainly four participants that are involved in this process; the seller, the marketplace, the financing platform and the end consumer. Let us discuss about these four in with a little more detail.
This party is also known as the supplier. This is the party that owns the business and applies for loan in order to fiancé their business. This party can be anyone, a manufacturing company, a trading company or even a service provider.
The Marketplace Platform:
It is a worldwide, well known digital e-commerce platform that is used for warehousing and for storage of goods.
The Financing Platform:
It can be referred to as a reputable financial institution, whose role is to provide liquidity to the seller by making funds available for them.
The End Consumer:
This party can be referred to as the actual buyers; these are the people, who purchase goods and services from the sellers by making use of the e-commerce marketplace.
If you have read all of this, you might think, how does eCommerce financing work? Let’s see how; if we speak about what mostly happens, we can understand it this way. It is the financing companies that provide the sellers with the capital that is required by them to smoothly carry out their operation. The feasibility of the application is assessed by a credit team that is appointed by the financing company. This team, by doing so, performs a risk analysis on the seller and it is very thorough. There are various quantitative and qualitative variables like the yearly turnover, the cash flow for the precious year, the stock analysis (the inflow and outflow of goods and materials), sale performance and many others; that are assessed and considered by these credit teams. And it is only after all of this is when the financing companies grant loans. Just as it turns out, financing companies are not the only way that one can finance their e-commerce business, there are various other ways, lets learn more about them.
1. Personal Savings:
these work very proficiently, when you a getting very low return on the things you have invested in and also when the interest on borrowings is very high. There are various advantages of using personal savings for financing your e-commerce business, some of them are:
- · You will not have to pay for any kind of interest.
- · The ownership of your business will not be dilutes.
- · There will be no need of indulging yourself into complex and costly application processes.
2. Friends and family:
if you ask your friends and family members to fund your business, you can make finance for your business without having to pay for any kind of interest. But something that you must keep in mind before takin loan from them is that irregular or no repayment of such loan may be a reason for straining your relationship with them.
3. Credit Cards:
it is one of the easiest way to have access for your e-commerce, especially when you can have access to a number of credit cards. But a downside for such type of access to funds is that the interest rates are quite high, and so you might have to pay a very high amount of your earnings in the form of interest and all of that earning will make less sense for your business.
4. Loans from Peers:
there are many networks both online and offline that allows individuals to grant and gain loans, these kinds of loans can also be called as peer to peer loans.
5. Home Equity Loan:
you can consider this type of loan if you own a house. If you have a good credit rating on your side, you can gain a loan by using your home as collateral. The interest rates for such kinds of loans keep fluctuating.
6. Traditional Bank Loans:
it is quite difficult to get this type of loan these days. The application process is quite lengthy and also, the bank charges fee and interest along with collateral as security.
7. Online Lenders:
there are some companies that also provide loans online. Getting approvals from these types of lenders are quite easy. But what you must look into is the credibility of such lenders and the experience of their last clients.
8. Venture Capital:
getting venture capitalists to invest and fund your e-commerce business is a good idea, but it can be a little difficult because venture capitalists are very picky about the place they make their investments in. A CVC would always want to have a seat in your board and will always try to tell you as to how you should make your business work.
9. Crowd Funding:
there are a various reward based crowdfunding sites present on the internet today, that you can make use of to get funds for your e-commerce business. This type of funding is very similar to that of venture capital, the only difference being that it is done with the use of internet and online.
Just like any other type of financing, e-commerce financing has its share of risks as well. E-commerce financing can be can be a great option for you only if used with precautions and handled responsibly. But before making such choice, you need to carefully evaluate all the strengths and weakness areas for your business. If wish to keep the control over your business but at the same time want to get advices from your investors, equity can be considers as a great option.