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10 Ways to Fund Your Online Business

Capital to help your online business grow can come from a variety of sources.

One of the most challenging aspects of starting and managing a small online business is finding the funds that will help you realize your dream. This is particularly difficult as your business begins to grow and mature.

Fortunately, there are a variety of avenues by which business owners might acquire capital for startup or expansion. Before you go seeking money, though, be sure to have a solid budget outline and business plan to better tackle the problem head on.

When preparing a budget, take note of how long the financing will be needed, what security you might be able to provide and whether you are willing to give up some ownership of the company in return for investment. Your budget might include startup costs—such as office equipment, inventory and license fees—as well as a financial plan for continued growth and development.

Once you’ve written a plan that clearly defines every aspect of store management, you will be prepared to show potential investors and loan officers that you mean business. Following is a list of 10 approaches to finance your online business.

Bootstrapping gives you 100-percent control of your business, but finding the cash to grow is hard work, and can take some time


If you’re a small e-commerce merchant—or about to become one—it’s likely you went in this direction because you wanted to be self-sufficient. Thus, you would probably love to fund your business all on your own, right? Bootstrapping means you rely on your own efforts and resources.

Skip McGrath, a Top-rated Seller on eBay and Amazon merchant, employed the bootstrap method when he went into business with his wife. In their 13 years of selling online, they used credit cards only twice. He explains that they self-funded by plowing the profits from their sales back into buying more inventory, and maintained outside employment until their online business was profitable enough to live on.

“That’s a slower way to grow, but it eliminated risk and kept us pretty much debt free,” he tells The Online Seller.

The upside of bootstrapping is obvious: You have 100-percent control of what happens with your business. The downside is equally obvious: Finding the cash for your business is hard work, and can take some time.

Friends and family

Gaining capital through friends and family seems to be a popular route for small business startups. These are the folks who know you best and are the most likely to want to see you excel in your pursuit.

For this reason, friends and family are a great resource for your business, but it’s also fragile terrain because unforeseen breakdowns lurk in the dollars that exchange hands between you. Your closest allies may not think twice about loaning you money, but a mysterious distrust often may develop if they don’t get that money returned to them within a certain time frame.

So be careful when soliciting funds from those who love you the most. And if you do decide to form this type of partnership, insist on getting the borrowing and repayment terms in writing so potential conflicts can be resolved more easily, should they arise.

Network funding

A fundraising tool that is currently in beta can be found at, which is designed to help merchants build a campaign around their business by inviting people they know to view the information in a private setting.

“Bolstr is a fundraising tool that helps Main Street small businesses raise investment capital from their friends, family, network and community in a private and secure setting,” says Charlie Tribbett, the company’s co-founder.

This financial management tool allows you to remain engaged with your investors and keep them updated on the progress of your business, he explains.

Crowd funding

If you believe your online business idea is beyond amazing, then perhaps a more creative way to raise capital would be through crowd funding. Sites such as KickStarter, PleaseFund.Us, and WeFund let people showcase their projects online and wait for interested sponsors to pool together your financial goal.

Crowd funding is a unique and increasingly popular way to put yourself out there and see what others think about your business idea

“Crowd funding gives you—the project owner—the ability to raise large amounts of money for your idea (sometimes through presales of a product, sometimes something as simple as sharing in the creative experience), receive feedback from the market all the way through your fundraising campaign, and start your project in the knowledge that you already have the money at the bank and some customers that have bought into what you are creating,” says James Bailey, founder of PleaseFund.Us.

This is a unique and increasingly popular way to put yourself out there and see what the crowd thinks about your business idea. Once your goal is met, you receive your funding. Those who sponsor your business project do not become co-owners with you, but they do expect a little reward for their investment. In the case of a merchant seeking business capital, you might promise a sample of your product.

Small Business Administration

Because the U.S. government believes small businesses drive the American economy, it formed the Small Business Administration in 1953 to provide assistance for those particular merchants. Not surprisingly, among the services it offers are small-business loan programs.

One of these includes the 7(a) Loan Program, which is to “help startup and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels,” according to the SBA site. While the SBA does not make loans directly, it guarantees a portion of loans made by commercial lending institutions.

Bank loans

Banks offer a variety of loans for startup and emerging businesses. Before you apply for a bank loan, do a little homework regarding loan terms and secured versus unsecured loans. Understanding what these mean will help you find the type of loan that best suits your needs and repayment abilities.

Loan types include consumer loans, working capital lines of credit, and short-term or longer-term commercial loans.

Cash advance

Calling itself “the friendly source for funding,” Kabbage is a resource for U.S.-based online sellers to apply for working capital. Funding is supplied by experienced investors and is targeted at the small online business selling on eBay, Amazon, Etsy, Shopify and Yahoo. Recently, Kabbage began extending cash advances to merchants who source inventory through drop-shipper Doba.

“We’ve worked hard to make the process of seeking working capital for an online business quick and painless,” Kabbage CEO Robert Frohwein tells us. “Instead of an eight-week process, typically resulting in a ‘no’ from a traditional bank, Kabbage’s process takes mere minutes, and you receive the cash in your PayPal or other transaction account.”

To qualify, you must have a minimum $1,000 in monthly sales. Those who qualify will receive the funds in their account within one to four days of applying, and can expect to pay interest of 8 percent to 18 percent on top of the original loan amount.

eBay sellers in the U.K. have a similar alternative in iwoca. The London-based startup launched in late 2011 and now provides working capital loans to established commercial sellers with at least 500 feedbacks. Loans have a term of 90 days, with interest rates that range from 3 percent to 10 percent.

Startup America

In 2011, the White House launched an initiative to grow entrepreneurship in America. From this, a private nonprofit dubbed “Startup America Partnership” was formed.
When you let investors into your company, you are giving them part ownership and a say in the business

This independent alliance of entrepreneurs, corporations, universities and foundations works to fuel high-growth startup companies. One of the five key areas Startup America Partnership focuses on is capital for these young companies.

Venture capital and angel investors

Venture capital usually comes from wealthy investors and financial institutions that want to place their money in high-risk ventures that could produce above-average returns. When you start letting investors into your company, though, you are giving them part ownership and a say in the business.

If you believe your business idea is amazing, and it has a high-growth potential, then you may need a large investment from these “angel investors” to get it going. If you would be happy to start a company, help it grow and then let it live out the rest of its life in someone else’s hands, then investment capital may very well be a good route for you.


It’s difficult to find federal grants that fit your small business goals. However, many states offer grants aimed toward local economic development. If you’re fortunate enough to obtain a small business grant, that’s money you don’t have to pay back, so it’s worth the time and effort to research where you can find these.

An easy starting place is Idea Cafe’s annual Small Business Grant program. The application period usually ends in March, but will open again in January.

The cost of borrowing

Each business owner is going to have different needs and answers, yet most successful businesses often have to lean on one or more of these financial strategies.

Regardless of what you decide, just remember to carefully weigh the costs your online business will carry when you set out to finance your goal, whether it’s in the interest rate, the social bond or the loss of company control.

About the author

Sarah Brown
Sarah Brown is a freelance writer who writes about e-commerce and small businesses. She recently graduated from Chico State with a journalism degree and is also a budding online entrepreneur, having launched two Web businesses and her own line of handmade products. Opinions expressed here may not be shared by The Online Seller and/or its principals.

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