So, you have a light bulb moment, a new idea for an e-commerce business. Before you get online, though, you’ll need to know your options for funding.

Many e-commerce businesses use warehouses, bulk orders from suppliers, or market their idea online. All of these things can be expensive for a new company.

Fortunately, there are ways that you can secure extra cash to get started. If you know how they work, you can choose which options are right for your business.

This guide discusses types of e-commerce funding, including:

  • Bank loans
  • Grants
  • Crowdfundraisers
  • Investments

Bank loans

Commercial mortgages

Even as an online business, you might want to purchase a property. For example, it could be an office to run your site or a warehouse to hold stock.

To buy a building, you can take out commercial mortgages from banks. Though they usually charge higher interest rates than home mortgages, they are often lower than a small business loan. That is because the building itself can be collateral in the commercial mortgage.

Small business loans

If you don’t need a property, you may instead want to fund equipment or supplies. . For example, you may need printers for your t-shirt business. 

If you need less than £25,000, consider taking out a small business loan instead. But you will need to supply the bank with a well-written business plan.

Business plan

A business plan is a document that summarises what your company is and what your projected financials will be. To help with that process, include a sales forecast.

To calculate a sales forecast, multiply your projected number of sales by the price you’ll charge. That figure will represent the money coming into the business.

Type of business

Taking out a loan can be a risk, but you could have more to lose depending on the type of business you set up.

You can either set up your e-commerce business as a sole trader or a private limited company:

  • Sole trader — you and the business are the same legal entity. You own all of the company but can be personally liable for its debt.
  • Private limited company — you and the registered business are separate legal entities.

You could have personal property seized to repay the bank loans as a sole trader. If your business is a private limited company, you’ll only lose what you put into it.

For more information, see: How to set up your business: Sole trader or limited company

Grants

When you look for e-commerce funding, you might be able to benefit from using grants as funding. Unlike loans, you won’t have to pay the money back.

Through the UK Government finance search portal, you can find a range of different types of grants.

Regional grants

Depending on where in the UK your business operates, there are different regional grants available to you.

For example, the ALPHAS Project for the South Midlands will pay 60% of the salary costs to hire a graduate or £1000-£3000 for equipment and services. The Business Boost grant for Elmbridge offers up to £2000.

Specific use schemes

Some grants focus on certain aspects of the business. Which means you can only get them, if you use them that way.

For example, any business in a rural area of the UK can apply for the Gigabit Broadband Voucher Scheme. That grant provides up to £3500 but can only go toward improving your internet.

Another type of grant that the government offers, aims at creating jobs. If you plan to grow the business and take on workers in future, there may be more grant opportunities for you.

Crowdfundraisers

To seek e-commerce funding beyond banks or government grants, you can look to the public. Crowdfunding allows you to ask numerous individuals to give you money.

There are different types of crowdfunding, and they may be suited differently depending on what your e-commerce business provides.

Reward crowdfunding

If your e-commerce company offers something unique and appealing, you can ask for funding through sites like Kickstarter and reward them in future.

The reward you provide is not financial, and those who invest don’t receive any ownership of the business. So, the reward should be something investors feel is worth their money.

For example, if you have plans for an invention but need funds to produce it, crowd funders could donate to receive a prototype later on.

Debt crowdfunding

Similarly to bank loans, you can also borrow money from individuals. That process is called peer-to-peer lending.

You can ask lenders to provide you with funding through a debt crowdfunding site like Funding Circle. You’ll then have to pay it back with interest, which is typically lower than a bank loan.

Equity crowdfunding

If you are happy to give away shares in your business, you can raise funds through equity crowdfunding.

Instead of going public on the stock exchange (which is usually reserved for larger companies), any business can sell shares through equity crowdfunding.

The amount you can raise will depend on the success of your campaign on sites like Seedrs. But afterwards, you’ll be responsible for listening to shareholder concerns. In other words, you’ll give up some control.

Investors

Similarly to equity crowdfunding, you can seek other investment funding in exchange for part ownership of your e-commerce business.

Angel investors

The type of private investment likely to be most suited to your e-commerce funding is the process of seeking angel investors

You can look for an angel investor to invest in you through sites like Angel Investment Network. Investors often choose businesses in industries where they have the experience to bring valuable contacts and advice.

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