About Small Business Financing
Many small eCommerce businesses face similar challenges when it comes to inventory and the supply chain. There are a number of compounding supply chain costs from raw materials to freight that must be paid before revenue from sales starts rolling in. This can lead to a cash flow crunch, in which the business owner doesn’t have enough capital on hand to order enough inventory to stay in stock. Small business financing is a great way to avoid this common dilemma.
Every small business is unique in its budget and goals. Depending on your industry and business type, you will have different needs when it comes to financing. There are a number of funding options out there for small businesses, so it’s important to consider your own individual needs and goals when selecting one to help you grow. There is no one-size-fits-all solution, so you’ll have to figure out your budget, goals, and priorities in order to find the right one for you.
Small Business Financing Opportunities
As a small business owner, you may be overwhelmed by the various banks, lenders, and funding providers advertising financing solutions. There are many options out there to help you grow your business, but they won’t all be a good fit for you. They have very different requirements and guidelines, from credit checks to taking equity in your business. Therefore, it’s wise to set down your priorities and gain a better understanding of what will and won’t work for your business. Then, you’ll be able to choose the small business financing option that best works for you.
Bank loan
A bank loan provides small businesses with a lump sum to cover large business-related expenses. The interest rates are typically lower than other loan types, as the strict eligibility requirements lower the risk for the bank. You’ll repay the loan with interest according to a predetermined schedule that includes fixed payments that must be made on time.
Despite the benefits of a bank loan, it can be very hard to obtain. Banks prefer to work with businesses that have at least three years of trading history and high credit scores. They aren’t experienced with eCommerce businesses, so their terms aren’t always a good fit for online businesses. If you are a seasonal business or have fluctuating sales, you may struggle to make the fixed monthly payments during a slow month. In addition, bank loans tend to have low approval rates and a long and tedious application process. Collateral may be required as well, depending on your bank and loan terms.
Pros
- High borrowing limit
- Low interest rates
- Interest paid on the loan is tax deductible
Cons
- Strict eligibility requirements and low approval rates
- Long application process, slow funding
- Fixed monthly repayments
Revolving line of credit
A revolving line of credit is similar to a credit card, as you are able to continually gain access to funds, up to a set limit, as you repay the loan. It’s a great loan to have for emergencies, last-minute orders, and managing day-to-day expenses. You have complete freedom when it comes to your spending schedule and you don’t have to secure their approval before making business-related purchases. Plus, it’ll help you build your business credit, so you can obtain better funding later on.
The requirements of a revolving line of credit are relatively lenient, so you’ll need to pay higher interest rates to compensate for that fact. The borrowing limit is also on the smaller side, as it’s not meant for large purchases, only managing regular operations. Therefore, if you need a large sum of money for a bulk inventory order or a business expansion, you’ll have to look elsewhere. Always read your contract carefully, as they may sneak in some extra fees.
Pros
- Freedom of use
- Builds business credit
- Easy to obtain
Cons
- High interest rates
- Low borrowing limits
- Extra fees
Merchant cash advance
If you’re having a hard time qualifying for loans from a traditional bank, then a merchant cash advance may be the way to go. They have lenient requirements and flexible repayment schedules. Depending on your business type, you can meet a fixed monthly payment or offer a percentage of your future debit and credit card sales. This flexibility is great for many small businesses that struggle to make fixed repayments during slow sales months. As long as you bring in regular revenue through credit and debit card sales, you’ll likely be able to qualify for a merchant cash advance. A credit check isn’t usually required, and neither is collateral, so you won’t have to risk your business assets.
Due to the perceived high risk the investor takes on with the lenient eligibility requirements, this type of funding is often more costly than a traditional loan. The cost of capital may be high and it will cut into your profits, so make sure you can afford it. In addition, if you fail to make payments, then the lender may have the right to remove money from your account, regardless of sales volume.
Pros
- Quick funding
- Repay as percentage of credit and debit card sales
- Lenient eligibility requirements
Cons
- High cost of capital
- Does not build credit history
- Money can be removed from your account at the lender’s discretion
Inventory financing
Nearly every small eCommerce business requires consistent inventory. You can obtain funding specifically for these products with an inventory loan. You’ll secure the loan with the goods themselves, which will serve as your collateral. Therefore, you won’t need to risk any of your personal assets. The process is quick and easy compared to other loan types, and the requirements are lenient. Startups and mature companies alike have had success with inventory financing, so approval depends on your unique situation.
Some inventory financing providers have high loan minimums that can be too expensive for some small businesses to afford. Other lenders won’t be able to provide you with the full amount of funding you need, so you’ll need to consider if you can afford the difference. The lender will also perform regular inventory evaluations. Be sure to keep accurate records in order to expedite this process.
Pros
- Quick and easy application
- Lenient eligibility requirements
- Inventory acts as the collateral
Cons
- Loan minimums might be too high
- You might not obtain full funding amount needed
- Lenders evaluate your goods regularly
Crowdfunding
If other loans and funding options don’t fit your needs, then you may want to turn to crowdfunding to help you launch your business or product idea. Crowdfunding involves pitching an idea to a group of investors. You can find potential investors on a number of popular online crowdfunding platforms like Kickstarter, Gofundme, and Indiegogo. People have the opportunity to browse different ideas and decide to invest in the ones that spark their interest. If they decide to invest in your idea, you’ll retain full control of the project, and you usually won’t have to repay the funds in the traditional sense. Instead, you’ll give your investors rewards or gifts, or even a share in your future profits.
Despite the large number of investors out there, it can be difficult to convince them to choose your project. Therefore, crowdfunding works best if you have an innovative or unique idea for your business or product. You’ll also need to spend some time and effort on your campaign to make sure it’s eye catching anc creative. Even so, a large percentage of crowdfunding campaigns fail to reach their goals.
Pros
- Quick access to funds
- Full control of campaign
- You don’t have to repay the funds
Cons
- Idea theft is possible
- Many projects fail to reach their goals
- A successful crowdfunding campaign requires time and effort
Equity financing
Another alternative to loans is equity financing. You can sell minority shares in your company in exchange for large sums of capital. In order to secure equity financing, you pitch your business plans to venture capitalists and angel investors. If they feel that your idea is promising, they’ll give you the funds you need to carry it out. Instead of paying your investors back, they’ll be entitled to a share of your future profits. Many equity investors have knowledge and experience in their fields, so they can help you improve your operations, too.
Keep in mind that giving away equity will dilute your ownership in your business. Your investors will have a say in business decisions as well as taking a portion of your profits. If you don’t wan to lose any of your ownership, this isn’t the type of financing for you. The dividends that you give your investors aren’t tax deductible and may cost more than the interest on a regular business loan. Be careful who you award ownership, as conflicts may arise between shareholders.
Pros
- Quick funding
- No repayment needed if the business fails
- Added experience to the business
Cons
- Profits must be shared
- May be more costly than interest on a regular loan
- Diluted ownership
Revenue-based financing
If you have consistent revenue, you are likely eligible for revenue-based financing, another flexible type of funding. You’ll repay revenue-based financing with a percentage of your future profits. This doesn’t have a timeline, as it depends on your sales volume. This is a big help for businesses that have slower sales months, as it may be hard for them to stick to a fixed monthly repayment. You retain full ownership in your business and will likely be able to obtain the funds quickly. The application process is usually relatively simple, and it doesn’t usually include a credit check.
Repaying revenue-based financing requires steady revenue, so you’ll need to prove that your business has been performing accordingly for a certain period of time. This is generally shorter than the requirement for a bank loan, though. In addition, revenue-based financing is often more expensive than other types of financing, so be sure you understand your repayment terms before signing a contract.
Pros
- Quick access to funds
- No credit checks or equity required
- Repay as a percentage of future revenue
Cons
- Requires steady revenue
- Often more expensive than traditional forms of financing
- Funding amount limited by revenue
8fig: An Alternative for Small Business Financing
8fig is a great option for small eCommerce businesses that need consistent cash flow. It’s a funding and growth platform that allows you to plan, manage, and finance your business during the slow seasons as well as the peak seasons. With 8fig, you’ll get a personalized funding plan designed according to your unique supply chain needs. You won’t have to worry about a long application process, strict eligibility requirements, or fixed repayments, so you can grow at the pace you choose.
Why use 8fig for small business financing
8fig offers a funding solution that is designed for small eCommerce businesses by eCommerce experts. It’s continuous, which means that instead of one lump sum, you’ll receive ongoing injections of capital according to your supply chain costs. This allows you to more effectively manage your cash flow and maximize your growth. In addition, 8fig’s plans are flexible, so you can adjust them in real-time to reflect the changing needs of your business.
How 8fig works
1. Apply
The application process is fast and easy. Answer some questions about your business and sales, and then provide basic information about your supply chain stages and expenses.
2. Connect your store and bank account
In order to provide you with an optimized Growth Plan, 8fig requires that you connect your store and bank account to the 8fig platform.
3. Get funded
With 8fig, you can get funded in just days. Since 8fig funding is continuous, you receive capital infusions into your business right when you need it.
4. Make adjustments
If something changes and you need to adjust your payments, remittance schedules, or even funding amount, you can always do so thanks to 8fig’s flexibility.
5. Grow your business
All that’s left to do is sell, sell, sell. With 8fig, businesses are able to scale 2.5x as fast.
What 8fig offers in addition to financing
8fig offers more than just an excellent funding option for small online businesses. Our all-in-one eCommerce platform gives you the tools and resources you need to plan, fund, and manage your business so you can take your business to the next level. We build an ongoing partnership with your business, fostering long-term success and growth.
In addition to funding, 8fig offers supply chain mapping software, cash flow management, a sales analytics dashboard, and even freight booking assistance. With 8fig you’ll be able to fund up to 90% of your supply chain costs while improving your business. This method has helped hundreds of eCommerce sellers grow their businesses.
Who is eligible for 8fig small business financing
8fig’s application process is quick and simple. You’ll receive your funds in days, rather than weeks or months. In order to be eligible for 8fig financing, you must sell a product online, be in business for at least 12 months with an annual sales revenue of at least $100,000, and have an average of $8,000 in revenue per month for the last three months.
How to apply for 8fig financing
It’s easy to apply for 8fig financing, and it only takes a few minutes. Simply answer the questions and follow the prompts and you’ll get funded in no time!