What Kind of Capital Is Required for E-Commerce?

Capital is the financial resource that businesses use to fund their operations such as cash, machinery, equipment, and other resources. These assets allow a business to produce a product or service to sell to customers. To sum it up, it includes all of a company’s assets that have some sort of monetary value, e.g. equipment, real estate, inventory, etc. However, when it comes to budgeting, capital is cash flow.

What Kind of Capital Is Required for E-Commerce

E-Commerce

E-commerce (electronic commerce) refers to buying and selling goods and services or transmitting funds or data over the internet. These transactions over e-commerce are mostly business-to-business (B2B), business-to-consumer, consumer-to-consumer, or consumer-to-business.

Requirement of Capital for E-Commerce

As with any business, capital is the utmost requirement for successful e-commerce. Lack of capital is the number one barrier to the growth of any e-commerce. 50% of all startups do not survive their first five years due to a lack of capital. There is no correct time to start raising capital but one must be clear about their goal and how much financing will be required to achieve it.

E-Commerce Financing

E-commerce financing is the funding that provides much-needed capital to the starters of e-commerce. This capital allows retailers to grow, cover market expenses, inventory costs, and also operational expenses. The six most popular ways to finance e-commerce are:

  • Bootstrapping
  • Crowdfunding
  • Grants
  • Equity Financing
  • Debt Financing
  • Revenue-share Financing

Bootstrapping

In the process of bootstrapping, an entrepreneur starts a company with little money from personal finances. The entrepreneur does not have a lot of finance to operate a company, but still does whatever he can to keep his startup functional with whatever resources he has. The entrepreneur may use the method of pre-order to generate capital and then use the same capital to build up the inventory. This gives him control over all the decisions. However, the drawback is that this method usually puts him and his company at unnecessary financial risk.

Crowdfunding

This refers to raising money to finance one’s own business. Fundraisers can also collect money from several people through the internet. Crowdfunding is a method of collecting capital and it also allows for an interaction between the owner and various investors. These investors are interested in funding a business online if the entrepreneur is able to sell his pitch. 

Grants

A grant is like financial assistance provided by a government, organization, or person for a specific reason. However, the entrepreneur doesn’t have to pay back the money. Grants include certain implications like meeting a certain goal, promoting a certain brand, giving a share of the business, etc. The entrepreneur is able to gather a large amount for their business in a short time and his business doesn’t suffer from a lack of funding.

Equity Financing

Capital is raised and collected through the sale of shares in the process of equity financing. By selling shares, companies are selling ownership in exchange for cash. Some companies might have a short-term need to pay bills or have a long-term one that requires funds to invest in their growth, which is why they go for equity financing.

Debt Financing

In debt financing, an entrepreneur borrows money that he pays back with an interest within an agreed timeframe, e.g. bank loans, overdrafts, mortgages, credit cards, etc. Although it helps him to jump-start his business, it still puts a strain on him to pay back the debt at a steady pace, and failure to repay the debt can lead to bankruptcy. 

Revenue-Share Financing

In revenue-share financing, the investors agree to provide capital to a business in exchange for a certain percentage of the business’s total gross revenues. This process is similar to equity-based and debt financing, however, revenue-share financing doesn’t have to give up ownership of the company as in equity financing. Also unlike debt financing, the entrepreneur doesn’t have to pay interest when sharing his profit with the investors.

Conclusion

E-commerce, like any other business, requires capital in order to grow properly. Proper financing is the key for any business model to be successful. In order to make the most out of business and suit individual and e-commerce needs, any method for generating capital can be adapted. Choosing the correct model which is tailored to the need of e-commerce is the key to successful e-commerce. 

Lastly, internet access is the most important feature for access to e-commerce and its system, which is why we recommend you to consider Xfinity internet deals. With its super-fast speeds and seamless connectivity, your navigating through the e-commerce platform will be smooth and lag-free.

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