Funding & Lines of Credit For Dropshippers & eCommerce Upstarts

Mihai-Alexandru Cristea 15/08/2022 | 20:37

Whether you are an established online seller or looking to start selling online, you may wonder how to increase your cash flow. Fundraising is essential to the success of any business venture. As such, decisions about funding your e-commerce business can make or break your expansion plans.

 

A business line of credit is a financing tool that helps businesses manage their cash flow, especially during growth periods and when waiting for customer payments. A Startup Business Credit Line (LOC) provides revolving credit if the startup has existed for at least six months. You can withdraw money, use it, pay it back, and withdraw more. 

Ideal Uses For Small Business Line of Credit and Funding

Lines of credit provide companies with a safety net or buffer, funding expenses, and operational activities. Most businesses, especially small and medium start-ups, don’t have cash in their bank accounts, and it can be difficult to run your operations. Common uses of lines of credit include:

  • Daily purchase of small assets or consumables. 
  • Funding for variable costs such as growth projects and marketing. 
  • Build a credit bridge between other loans and small business loan options that can take longer to apply and receive funds.
  • Adding staff for seasonality, business expansion, or other non-fixed costs. 
  • Having liquidity to deal with company setbacks, disasters, and other issues.

Depending on the source, you may have to take various steps to qualify. The evolution of e-commerce means that there are many funding options available. For e-commerce financing, you can apply for the type of small business loan many other businesses offer.

Some companies also offer e-commerce venture capital and may be eligible for e-commerce grants. Some of the available funding options for e-commerce businesses include:

Vendor Lines of Credit

Vendors that do not require immediate payment effectively offer short-term business lines of credit. Depending on the repayment term and loan amount, you may be required to provide financial information to obtain payment terms.

Credit cards, utility companies, telephone and internet providers, web hosting companies, and other providers may not charge you for up to 30 days after being billed. Such credit terms can be provided free, but the discount can be withheld by delaying payment.

Bank Lines of Credit

Many commercial banks offer commercial lines of credit. To qualify, the business and owner may need to demonstrate timely payment history over the last few months. If your credit rating is low or your payments are delayed, start making payments now.

Correct errors in the report before the loan officer reviews your credit history during the loan application process. 

However, one of the problems with bank loans is that you not only have access to the funds when you need them most, but you also have to borrow a lot of money at once.

This issue can lead to liquidity issues. Alternatively, interest has to be paid before the cash can be borrowed, which can dramatically impact margins. It is best to seek expert advice to choose the best entrepreneur funding option for your start-up.

Invoice Financing

Invoice finance is an e-commerce financing option that helps with cash flow issues. For this business loan, you work with lenders who hold up to 85 per cent of the outstanding bills. It is a popular option for many e-commerce startups. You can research more to assess its suitability for your needs.

Business Credit Card

Credit cards are generally easy to obtain, use, and manage. Plus, most people are familiar with it, making it common among the population.

Business owners should consider the pros and cons of credit cards when deciding whether to use them as a primary source of funds. They should be part of the seller’s short-term capital stock.

However, it is best to find out as much as possible about this financing option to ensure it is suitable for your business. Whether you use personal credit or business cards, this type of financing can quickly become expensive. With high-interest rates and late fees, credit cards can take a toll on small businesses when there is a lull in sales.

The retail economy is rapidly shifting towards consumer goods, which is good news for e-commerce entrepreneurs. There are more ways to access e-commerce finance and more types of e-commerce finance to consider. When financing your e-commerce business, you want the best option for your needs.

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