If you’re a founder, you’re no stranger to cash flow problems. Anything from unexpected expenses and increased liabilities to downright emergencies can greatly slow down your growth at critical points. And while working capital challenges can occur with any business, e-commerce companies are especially prone to disruptions because their funding options can be few and far between compared to brick-and-mortar stores.
Let’s say you have a small e-commerce business and you’re trying to access working capital either through a bank loan or investor equity. Funds can take anywhere from 3 to 6 months to become accessible, so what do you do in the meantime? A working capital problem can truly leave you spinning your wheels in the mud, not to mention stunting your growth and revenue. Unfortunately, it’s a commonplace problem that’s part of the reality of owning a business. But it’s not all doom and gloom: today, there are many options to circumvent potential working capital problems through various traditional and alternative funding options.
Over 32% of e-commerce businesses list “running out of cash” as one of their top reasons for going under; another term for running out of cash is a cash flow problem. So how does working capital play into all of this?
Working capital is the cash flow available to you to cover expenses at a given time, such as payroll, inventory, or operational costs. When your expenses exceed the funds available to you, you can leverage working capital to bridge those gaps for a temporary time. This will allow your business to continue operating as usual, and avoid any potential issues with stagnation on revenue or growth.
A universal truth in the business world is that expenses add up, whether you like it or not. Oftentimes, as costs and liabilities pile on, payment from your vendors may not yet be in your pocket. Instead of burning the candle on both ends to keep your business from going under, working capital can help in the following kinds of scenarios:
Despite the global e-commerce surge in 2020 (and still going strong), e-commerce founders don’t always have access to most traditional options for funding, like banks. Only about 13.5% of small businesses are able to secure bank loans, and this figure is mostly made up of brick-and-mortar retail. The e-commerce ecosystem is constantly evolving, so even if your business qualifies for a traditional loan, it’s worth comparing alternative sources of funding, including:
Find out more about alternative ways to fund your business here.
There are key differences between traditional bank loans and alternative business funding options. The right type of lending for you will depend on the needs of the business, where it is in the business life cycle, and what lending options you and your business qualify for. Here are a few key questions to consider as you work through your working capital options:
Keep in mind that not all working capital solutions are the same, and that each one offers a different set of terms. As with every financial transaction you’ve made so far, take the time to do your due diligence to ensure you’ve made the right decision for your business. Remember that access to working capital means your business can continue to run smoothly. Before you take your business to the next level, take a moment to make sure you’ve got access to working capital, and that it’s...working!