Having a good idea and a business model isn’t enough to scale a business. Starting a business requires a substantial amount of time, effort, and money. Before now, business funding options were limited to personal savings, family loans, business loans, and crowdfunding. Today, entrepreneurs have more options for raising working capital. Here’s a complete guide to business funding options.
Business Financing Purposes
Businesses need a significant amount of financing to stay afloat. Here are two of the most common funding purposes.
1. Operational Costs
Businesses require sufficient startup costs to run efficiently and earn profits. These operating costs include hiring costs, equipment, payroll, inventory costs, insurance, and marketing. While operating costs are necessary and unavoidable, it’s vital to reduce these expenses to avoid generating a negative cash flow. Whatever cost-cutting measure you choose, ensure it doesn’t affect your business’s ability to compete with others in the same niche.
2. Marketing
To earn profits, you must have a solid business plan that includes a budget, products and services, financial planning, and a marketing plan. The plan should include a marketing roadmap for achieving key performance indicators. A winning marketing plan is developed based on a solid digital marketing strategy and the business’s value proposition.
Digital marketing is an invaluable resource for many modern businesses. It includes influencer marketing, content marketing, and social media marketing, which are arguably the most effective forms of digital marketing. If you don’t have an in-house marketing team, you can leverage a comprehensive digital marketing planning template to formulate an actionable plan for your business. Having a viable marketing plan is vital for achieving a successful campaign and the overall success of your business.
Before executing any marketing campaign, you need to have a specific goal like boosting brand awareness, retaining your customer base, or driving eCommerce sales. Essentially, your social media goals should inform your social media strategy. Similarly, eCommerce entrepreneurs looking to generate more online sales should adopt a content strategy that’s appropriate for an eCommerce brand and target audience.
Types of Business Funding
When you search online for “funding for ecommerce business,” you’ll discover that there are many types of business funding out there. This is because there’s no one-size-fits-all option. Ensure that whatever type of funding you choose is right for your business model. We’ve listed some types of business funding below.
1. Debt Financing
Debt financing primarily comes from a local bank, traditional lender, or some other financial lending institution. Sometimes, it’s possible to negotiate debt financing with a private investor. If you choose to borrow from the bank, you’ll have to complete an application for a traditional bank loan. If it’s a new business, most banks conduct a credit check to determine the owner’s creditworthiness. Additionally, the bank or the lender will likely examine your business records and run other due diligence. Before applying for debt financing, ensure your books are organized and complete.
2. Small Business Loans
Business owners who don’t qualify for debt financing can apply for small business loans. The U.S. Small Business Administration (SBA) partners with select banks to provide small business loans to business owners. The United States government guarantees a portion of the loan to reduce the risk to the lender.
3. Equity Financing
Equity financing comes from angel investors or venture capitalists. A venture capital firm comprises partners, accountants, lawyers, and investment advisors who conduct due diligence on all potential investments. Venture capitalists often deal in substantial investments. That’s why the process of obtaining equity financing is usually slow and complex. In contrast, angel investors or outside investors move fast and request simpler terms. The most significant advantage of equity financing is that you won’t be required to pay back the money if you go bankrupt. The investors lose their investment alongside the company. The downside is that the investors own a stake in your business, making them partial owners.