Are you looking for ways to grow your e-commerce business through funding and extra financial boosts? You have found the right place. Whether you recently launched your e-commerce or currently running an established one, fundraising could be what your business needs for growth. We’ve gathered a list of 6 most popular funding options for e-commerce business in Singapore. Read on to see what e-commerce funding options are available for your online business.
One of the growingly popular way of financing e-commerce businesses has to be revenue based financing. This is a kind of financing that comes with a repayment schedule dependent on the company's monthly revenue. This flexible kind of repayment allows you to make smaller payments when your revenue is low and larger payments when it is greater, which relieves the pressure on businesses during a month when business is slower than normal. It is also advantageous for new businesses that can have a strong track record of prior revenues. Your sales history on your POS system, an e-commerce platform like Shopify or Stripe, or even delivery systems can provide this information (e.g. Grab or Deliveroo). Read our full guide on revenue based financing.
Unlike equity financing, you still have full ownership of your company as there is no dilution in your equity. At the same time, you get to benefit from risk participation from your funder as there is no fixed repayment and your funder simply gets a share of your revenue. The obvious con here is that your business does exceedingly well and your funder gets access to the increased revenue amount. Nonetheless, that sounds like a good problem to have.
The Singapore government offers various types of financial grants to support businesses of different sizes & industries. From grants to help companies ease hiring costs to grants for digital businesses. In light of Singapore’s ongoing journey to boost digital transformation through local businesses, the government has provided a series of support through grants for the Singapore enterprises. Online businesses or digital merchants can consider applying for grants like Productivity Solutions Grant, Enterprise Development Grant, and Market Readiness Assistance (MRA) Grant that are targeted at small and medium-sized enterprises and applicable to e-commerce businesses.
The obvious advantage to applying for grants as your funding option is that it does not require repayment. And once you have been awarded the grant, you become a reliable candidate, making your future applications have better chances to receive other governmental subsidies or grants from other organizations. However, grants typically only offer a percentage of the cost of your project and are usually highly competitive, because who does not love free money?
Enterprise Financing Scheme is a collection of 7 government-assisted financing schemes by Enterprise Singapore. This scheme aims to enable Singapore enterprises to access financing more readily throughout their various growth stages. Enterprise Singapore will share the loan risk in the event of enterprise bankruptcy with the Participating Financial Institutions. The most common available financing is the SME working capital loan which is available at most banks offering at a tenor of 5 years business loans with rates from 8.75% p.a.
In a nutshell, government loans are structured to offer local businesses the chance to gain enough of a windfall to develop their business at an exceptionally low-risk rate. Hence, interest rates are competitive and larger loan amounts are available for riskier borrowers. As a result, the loan application process can be highly competitive and more time is required before you have access to the cash.
Crowdfunding involves small amounts of capital from a large group of individuals to finance a new business venture. Crowdfunding is usually done through social media and famous crowdfunding websites like Kickstarter, Indiegogo, and GoFundMe which have hundreds and thousands of people consisting of investors and other entrepreneurs.
Crowdfunding is a great option to raise money for an e-commerce business especially those selling a new idea or product in the market. However, more effort is needed for your business, idea or product to get noticed and there’s a low success rate. Since it's the least risky way to raise funds, crowdfunding communities are full of scammers and the chances of competitors imitating your product are high.
Equity financing is when you raise funds by selling some shares in your business to new investors or to your existing shareholders. By selling shares, companies are selling ownership in their company in return for cash. However, this doesn’t mean that you are giving away your control of your business as some investors take only a minority stake.
Businesses prefer equity financing because there’s no additional monthly cost as you don’t have to make a monthly loan repayment. As mentioned, the price to pay for equity financing is that you need to share control of the company. For that reason, investors may request board seats and take an active role in business decision-making, taking some parts of your ownership in the company.
Debt financing is the opposite of equity financing which requires companies to issue stocks and sell shares to raise funds. Debt financing is the process of raising money by selling debt instruments to investors. Some popular debt financing options include bank loans, term loans and credit lines.
Unlike equity financing, you still have full ownership of your company and lenders have no say in how you manage your company. You make all the decisions. The business relationship ends once repayment of the loan is completed. However, you need to have a good enough credit rating to receive financing and the financial discipline to make repayments on time. Some debt financing lenders require you to put some business assets at potential risk. It is also possible for lenders to ask borrowers to personally guarantee the loan, putting some risk at your personal assets.
We have created the complete guide on business loans in Singapore as well as some non-bank alternatives for business loans in Singapore. Check them out and discover which one is best for your e-commerce business.
Jennifer loves helping SMEs in their business growth journey. She is also an epicurean and has perpetual wanderlust. During the weekend, she weaves poems out of thin air and buries herself in books.