What do you need to know about how to fund a startup business? First, there is more than one way to do it! It’s true. Regardless of what is happening around you, in most cases you can fund a startup business in some way. It may very well take longer depending on your exact situation, but it is almost always possible.
You Can Fund a Startup Business No Matter What is Going On
The thing is, virtually everyone assumes if they cannot get a business loan, they can’t fund a startup business. That really isn’t true. There are all kinds of options for funding. Loans are only one of them. Furthermore, there are probably many more types of loans than you think. We put together a list of some of the most common, and less common, ways to fund a startup business in any situation.
Fund a Startup Business: Traditional Loans
These are the loans that you go to the bank to get. With a traditional loan, you are almost always going to have to give a personal guarantee. This means they will check your personal credit. If it’s not great, you are probably out of luck. That is where a lot of people stop, thinking they have hit a brick wall.
There are ways over that wall however.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.
Fund a Startup Business: SBA Loans
SBA loans are traditional bank loans. However, they have a guarantee from the federal government. The Small Business Administration works with lenders to offer small businesses funding solutions that they may not be able to get based on their own credit history. Because of the government guarantee, lenders are able to be a little less strict on personal credit score requirements.
The trade-off is that the application progress is lengthy. There is a ton of paperwork connected with SBA loans.
Fund a Startup Business: Private Loans
Private business loans come from companies other than banks. These companies are sometimes called alternative lenders. Many have popped up in the past decade as entrepreneurship has become more common. The need for a financing option from somewhere other than traditional banks has spurred this growth.
There are a few benefits to using private business loans over traditional loans. The first is that they often have more flexible credit score minimums. They still rely on your personal credit. Yet, they will often accept a score much lower than what traditional lenders require. Another benefit is that they will sometimes report to the business credit reporting agencies. That helps build or improve business credit.
The tradeoff is that private business loans typically have higher interest rates and less favorable terms. Still, the ability to get funding and the potential increase in business credit score can make it well worth the cost.
Examples of Private Lenders
The thing about private lenders is, you almost always have a time in business requirement. However, it can be as low as one year, even 6 months in some cases.
BlueVine
The minimum loan amount available from BlueVine is $5,000 and the maximum is $100,000. Annual revenue must be $120,000 or more and the borrower must be in business for at least 6 months. Personal credit score has to be at least 600. It is also important to know that BlueVine does not offer a line of credit in all states.
OnDeck
With OnDeck, applying for financing is quick and easy. Apply online, and you will receive your decision once application processing is complete. Loan funds will go directly to your bank account. The minimum loan amount is $5,000 and the maximum is $500,000.
There is a personal credit score requirement of 600 or more. Also, you must be in business for at least one year. There is an annual revenue requirement of at least $100,000 as well. In addition, there can be no bankruptcy on file in the past 2 years and no unresolved liens or judgements.
Fund a Startup Business: Crowdfunding
Crowdfunding sites allow you to pitch your business to thousands of micro investors. Anyone who wants a piece of the action can buy in.
Investors pledge amounts ranging from as low as $5 to as high as they want. They may give $5, $80, $150, or even over $500. As a general rule, they can give as much or as little as they want.
Though not always necessary, most business owners offer rewards for investment. Typically, this comes in the form of the product the business will be selling. Different levels of giving result in different rewards. For example, a $50 gift may get you product A, while a $100 gift will get you an upgraded version of product A.
The two most common crowdfunding platforms are Indiegogo and Kickstarter.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.
Fund a Startup Business: Angel Investors
These investors are usually only in for a one-time deal. Many choose to spread their risk out over many people and many businesses to be certain they get a safe return on their investment.
Angels tend to be a lot more informal than most types of funding. They can be people you know. Or they can be people you connect with through networking or other means.
Angels are not covered by the Securities Exchange Commission’s (SEC) standards for accredited investors. But a lot of them are accredited investors anyway.
To become an accredited investor, an person has to have a minimal net worth of $1 million, and an annual income of $200,000.
There are a number of angels who aren’t millionaires. They could be friends or colleagues with home equity, or local professionals who are looking to invest.
How Do You Find Angel Investors?
The best way to find these kinds of investors is to ask. You can also try an angel investors website or network. Try Gust, which used to be called Angel Soft. They keep a database of investors, companies, and programs. Startups can also search for business plan competitions and more.
Another option is to look at the biggest angel investor groups. Be aware, however, that these meetings are really only going to happen if you can get an introduction.
According to Entrepreneur, in order from smallest to largest the top 10 Angel Investor groups are:
New York Angels Inc.
Alliance of Angels (Seattle)
Pasadena Angels
Hyde Park Angel Network (Chicago)
Band of Angels (Menlo Park, CA)
North Coast Angel Fund (Cleveland)
Golden Seeds LLC (NYC)
Investors’ Circle (San Francisco)
Tech Coast Angels (Los Angeles) and
Ohio Tech Angel Funds (Columbus, OH)
Focus and requirements may vary from group to group. For example, some concentrate on local startups only. Do your research so you don’t waste yours and the angels’ time if it isn’t a good fit.
Fund a Startup Business While Keeping Your Day Job
Here’s an option that most don’t want to hear, but it is totally legitimate and sometimes, it’s just the best way. If you do not have access to a ton of funds to launch a huge new business right away, consider keeping your day job and start your business small, as a side hustle.
Not every business can start this way, but a lot can. For example, a bakery or a cleaning business can easily start this way. If you set up from the beginning to be fundable and build business credit, you can go even further. More on that later.
Fund a Startup Business: The Retirement Years
This is similar to keeping your day job in that you start small. If you have retirement savings you could use that as loan security, or take a loan directly from retirement if your plan allows for that. You can build your business slowly, a little at the time. While you’re doing so, you can work to build business credit and overall fundability
Whatever You Do, Build Fundability from the Beginning
So, how do you do that? How do you build fundability and business credit? The first thing you do is set up your business to be fundable. When you do this, you will also be setting it up to be a separate entity from you as the owner, which is the first step in building separate business credit. How do you build a fundable foundation? You need the following.
Contact Information Separate from the Owner
The first step in setting up a foundation of fundability is to ensure your business has its own phone number, fax number, and address. That doesn’t mean you have to get a separate phone line, or even a separate location. You can still run your business from your home or on your computer if that is what you want. You don’t even have to have a fax machine.
An EIN
The next thing you need to do is get an EIN for your business. This is an identifying number for your business that works in a way similar to how your SSN works for you personally.
Incorporate
You have to incorporate as an LLC, S-corp, or corporation. It gives credit to your business as one that is legitimate, and it separates your business from you as the owner.
Which option you choose does not matter as much for fundability as it does for your specific budget and liability protection need. The best thing to do is discuss it with your attorney or a tax professional. You are going to lose the time in business that you have. When you incorporate, you become a new entity. Basically, you have to start over. You’ll also lose any positive payment history you may have.
This is why you have to incorporate as soon as possible. Not only is it vital to fundability and for building business credit, but time in business is also important. The longer you have been in business the more fundable you appear to be. That starts on the date of incorporation, regardless of when you actually started doing business.
Separate Business Bank Account
You have to open a separate, dedicated business bank account. There are a few reasons for this. First, it will help you keep track of business finances. It will also help you keep them separate from personal finances for tax purposes.
In addition, you cannot get a merchant account without a business account at a bank. That means, you cannot take credit card payments. Studies show consumers tend to spend more when they can pay by credit card.
Licenses
For a business to be legitimate it has to have all of the necessary licenses it needs to run. If it doesn’t, red flags are going to fly up all over the place. Do the research you need to do to ensure you have all of the licenses necessary to legitimately run your business at the federal, state, and local levels.
Website
These days, you do not exist if you do not have a website. However, a poorly put together website can be even worse. It’s the first impression you make on most, and if it appears to be unprofessional it will not bode well for you with lenders or customers.
Fund a Startup: Build Business Credit
Okay so, you need to know how to fund a startup, not how to set it up, right? Here’s the thing. Once you have your business set up like this, you can start building business credit so that you have more options for funding your business.
The main key to this is to use starter vendors that will issue net terms on your invoices and report those payments to the business credit reporting agencies. Even if you are keeping your day job or starting small during retirement, you can use these vendors for the things you need in the everyday course of business.
Things like office supplies, packaging, and even cleaning supplies can be purchased from such vendors on account using your business information. As you get enough of these accounts reporting, you can apply for store credit, then fleet credit, and eventually, regular business credit cards that are not limited to specific types of purchases or specific stores. Then, your business credit should be strong enough that you can qualify for a loan and launch your business on a bigger scale.
Check out our best webinar with its trustworthy list of seven vendors to help you build business credit.
Fund a Startup Business: There are More Ways than One
The truth is, there is more than one way to fund a startup business. Depending on your specific situation, you will have to decide which option or combination of options will work best for you and your business.
If you ever plan on finding investors, partners, or employees for your e-commerce startup, you’ll need to know how to create a business plan. A lot of people make this process out to be more complicated than it needs to be. When you do it right, creating a business plan doesn’t have to be so difficult.
In this guide, I’m breaking down step-by-step everything you need to know about creating a powerful e-commerce business plan.
What is an E-Commerce Business Plan?
Have you ever thought about something you wanted to accomplish in your business? You’d likely jot down a few lines discussing strategies, costs, and methods behind the steps you would take to achieve those goals.
If you’ve ever done that, you’ve created a basic business plan, and there isn’t too much more to it than that. An e-commerce business plan is a strategy for how your business will work, how you’ll fund it, who your audience will be, and how you plan to succeed.
Understanding how to create a business plan is key. It requires research, understanding your audience, budgeting, and more.
The overall key to writing a business plan is to create something comprehensive enough, so you never have to wonder what step is coming next. As you navigate the sometimes challenging process of starting an e-commerce business, don’t leave anything to chance.
When you’re struggling or having a hard time envisioning the next step, you don’t have to worry because your business plan thoroughly outlines everything you’re going to do, when you’ll do it, and how much it’ll cost.
Another aspect of business plan writing is looking for investors or partners. You need to pitch your e-commerce business in a way that is easy to understand. Investors aren’t going to jump aboard something that lacks vision or appears unorganized.
Having a thorough business plan that gets straight to the point will show investors that you know what you’re doing and you have a concrete strategy for success.
How is an E-Commerce Business Plan Different From Other Kinds?
The way e-commerce businesses reach their customers is much different. At a brick and mortar store, for example, foot or vehicle traffic will contribute to a lot of free advertising for the business.
E-commerce stores, on the other hand, can very easily get buried in the SERPs, never to be seen by anyone if you don’t know how to get the word out. You need to keep these types of things in mind when putting together your business plan.
As for research and development of your business plan, standard businesses need to factor in local licenses, ordinances, building codes, and other factors that may influence where and how they can conduct business.
Luckily, e-commerce doesn’t have to worry as much about that, but it doesn’t mean you can ignore it either. It’s your responsibility to understand any restrictions or requirements that may prevent you from sourcing and selling your products.
Why E-Commerce Business Plans Are Important
Understanding how to create a business plan means nothing if you can’t see the importance behind it. While I believe there are more important aspects of starting a successful business, every e-commerce venture should have a stable foundation, beginning with a business plan.
Business Plan = GPS
You’re the driver of this business, but you’ll end up going in circles, wasting time and money, if you don’t know where you’re going. Having a solid business plan guides you through the steps of starting and growing a business. Think of the plan as the GPS of your business. If you ever get lost, you can fall back on your original plan.
It Helps You Generate Ideas
This process is much easier than it seems. It might seem like this looming dark cloud of horror, but once you dive in, the juices will start flowing, and you’ll find out that you probably have a lot of great ideas. This may be the first project of your new venture, so business plan templates and how-to guides can help.
It Can Help You Understand the Market
Getting your audience right is the most important aspect of an e-commerce business. If you’re trying to reach everyone, you’ll reach no one. A big part of your business plan needs to be the development of a customer avatar. This avatar is your perfect customer. They’re the ones that buy everything you sell because they love you and your brand.
It Helps with Funding
Whether you’re looking for funding or business partners, you’ll need a business plan. Having a strong strategy shows investors that you’re confident in what you’re doing, you understand the business, and investing with you is a smart choice for them.
It’s a Great Way to Keep Track of Accomplishments
What better way to look back and see everything you’ve dreamed of come to life? You can map out the next few years in a business plan and look back as everything comes together, and keep track of everything you’ve accomplished. A business plan acts as a “to-do” list for your new venture.
What Does an E-Commerce Business Plan Look Like?
If you’re wondering what a business plan should include, it might look a little different than you originally thought. The days of massive 15-page business plans are over; you don’t need a super complicated plan to find investors and sell your products.
Lean business plans are growing in popularity. This e-commerce business plan involves a one-page “pitch” of your business. You’ll document the problem you’re solving, your unique solution, your market, the competition, your team, and a little information about your company culture.
Part 1: Executive Summary
Think of an Executive Summary as an overview of your company’s goals and objectives. If you had to hand someone a piece of paper explaining as much about your business in 250 words or less, what would you say?
It should include information such as:
A description of your products and what you sell
Your goals as an e-commerce provider
Identifying your target audience
Explanation of your competition and how you stack up
Overall growth potential
Funding requirements
While you’re not going in-depth in any one area here, this is the most important aspect of the business plan because it’s your overview. When people think of your e-commerce brand, this is what they’ll think.
Part 2: Description of the Company
Who are you, what is your experience, and why should you have the right to sell products to other people?
The company’s description is a lot less about what you want it to “be like” and more of what “you’re like.” You’re pitching yourself, your experience, and your ability here.
A great business example here might be:
In this description, we covered what we’re selling and provide the credentials of the owner, which will create confidence in potential investors and partners.
Step 3: Market and Industry Research
If you don’t understand your audience or the industry you’re working in, you’re doomed. Researching the market is critical, and there’s a big difference between standard business and e-commerce here.
When you’re researching the market for a retail store, you’re very limited in who your audience is, so it’s a bit more cut and dry.
As for e-commerce, the world is your audience, but you need to narrow it down to a specific demographic to cater to your products and marketing to those people.
Ask questions like:
What problems do my customers have?
How can I solve these problems?
What products solve those problems?
When do people shop for these products?
How often do they purchase them?
Step 4: Operations Plans
Forget learning how to create a business plan; we all go into business to profit, right? Having an operations plan helps ensure you remain profitable by keeping all your costs in line. This section of the business plan discusses managing, staffing, preparing products, fulfilling orders, inventory management, customer service, and more.
This part is where you get to start outlining what a typical day will look like in your business. How will it run, how will people convert, and how will you fulfill those orders?
Start thinking about things such as:
What equipment and supplies do I need?
What is the chain of command; who is in charge?
Do I need to develop products, or am I reselling others?
What are my staffing needs?
Will my operations change or remain the same as I grow?
Make sure you keep your industry, market, and target audience in mind as you prepare your operations plan. You don’t want to venture off in the wrong direction as you dive deeper into it.
Step 5: Marketing Plans
It’s a no-brainer that you’ll have to market your business if you want to have success, but you need a plan. In e-commerce, you have a few different options, and the choices you make will determine a lot.
You need to highlight the methods you plan on using so partners and investors can see that you have a clear path to success. Some of your choices may be:
PPC (Pay-Per-Click)
SEO/Content Marketing
Guest Posting
Social Media
I recommend using a combination of all of these because they each have upsides and downsides. For example, SEO is a relatively low cost to get started, but it takes time, and if you don’t possess the knowledge yourself, you’ll have to hire an agency to do it for you.
PPC can be costly if you don’t know what you’re doing, but the results can come quickly because you’re leapfrogging over a lot of the competition.
Regardless of what marketing methods you choose for your e-commerce business plan, you need to highlight them and explain how you plan to use them.
Step 6: Costs and Revenue Predictions
Now you need to wrap up your business plan and put a nice bow on top. Based on everything you’ve included so far in your business plan, what are your costs versus your revenue? Keep in mind that first-year revenues aren’t always extravagant, but you need the potential to gain more revenue in the future.
As long as investors and partners see that you have the growth potential, they won’t worry too much about first-year losses. The goal should be to keep your costs as low as possible and your revenue as high as possible (makes sense, right?).
Predict the total cost of operation in your business in the first year or two and include that in the plan. Then, anticipate the revenue prediction as well and include that.
If you’ve followed everything in this guide, there should be a clear path that brings you to those numbers. You should know how much everything will cost to get started and operate the business for a year.
Based on your market and what your competition is doing, that’s where you get your first-year revenue predictions.
Make it transparent and keep it simple.
What Do I Do With an E-Commerce Business Plan?
Now that you know how to create a business plan, what are your next steps? What do you plan to do with the business plan? Most people will use their business plan to find investors, partners, and employees when they’re getting started.
If you’re thinking about pitching to investors, you’ll want to choose carefully because not all investors are the right choice for you. Even if someone is willing to give you what you ask, they might not be the right fit, and taking their money will lead you down the wrong path.
First, you want to look at an investor’s expertise. When they have experience in a certain area, it makes it easier for them to understand your potential, and they can offer guidance to help you succeed.
Second, in what stage is your business? Different investors specialize in different stages. Some invest in pre-seed, while others won’t even hear your pitch until you have revenue.
Third, how much do you think you need? What you think you need and what you need are two different things.
Lastly, how do you plan on involving your investors? Some investors will back you financially and offer nothing more, while others will demand consistent financial updates and reports while offering guidance and assistance. You need to determine how involved you want your investor to be in your operations.
Conclusion
Now that you know how to create a business plan, the rest is up to you. Remember that gathering information and understanding something is important, but it’s nothing if you don’t implement what you learn. Take the steps outlined in this guide and put them to work.
If this seems a little daunting, we have plenty of resources to help you. Your business plan doesn’t need to be this elaborate essay; you can complete it in a day with the right strategy.
What do you think is the most important part of creating a solid business plan?
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The thing is, virtually everyone assumes if they cannot get a business loan, they can’t fund a startup business. That really isn’t true. There are all kinds of options for funding. Loans are only one of them. Furthermore, there are probably many more types of loans than you think. We put together a list of some of the most common, and less common, ways to fund a startup business in any situation. 
