Start Up Funding for New eBay Businesses!

This is a topic that I’ve shied away from writing about a little bit, mainly because I don’t want to give general financial advice to people without fully knowing their circumstances, finances and plans.

However, I think this is a very important topic and something I need to cover as it really pains me to get emails from people struggling and in debt, all because they financed their online business dream in the wrong way!

So today, I’m going to be going over some of the options for financing a new online business. Let’s get to it!

Firstly, I want to clarify a common misconception about starting an online business which I hear all the time and just don’t agree with and that is “that you don’t really need a start up budget and can create a successful business with practically nothing”.

Unfortunately this is just false!

Of course there are some strategies and business models you can use to get started with a very limited budget BUT these aren’t ideal and you’re very limited in what you can do.

In fact, the main purpose of these low-budget strategies is to build up a proper bank so that you can really launch your business.

So many people think that though you need tens or hundreds of thousands of pounds to start an offline business, you can start an online business on a shoestring budget.

And while of course online businesses are much cheaper to launch than an offline one (that’s one of the great things about the internet – it opens up a lot of opportunities for people) that doesn’t mean that there aren’t still costs involved when you launch a proper online business. Things like:

• Website Design
• eBay Store and Template Design
• Stationery Design
• Samples
• First Orders
• Import Tax & VAT
• Initial Supplies and Equipment

It all adds up!

Please don’t take this the wrong way and think that I’m saying it’s impossible to start an online business unless you have a big starting budget as that’s obviously not the case. There are many viable methods for starting out without much money (a few of which I’ve covered on this very blog that have been incredibly popular, links at the end of the article if you’d like to check those out) but just understand that these are limited and will mean more time and work from you before you can build them up into a big business.

Basically, just be realistic in your expectations and lose the mindset of online business = no money needed.

Alright, but enough about that! Let’s move onto the main point of this article.

Bank Loan

This is probably the first thing that comes to mind when people think about business financing BUT it’s really not something I’d suggest; mainly because starting off by putting yourself in debt is in my opinion the worst possible thing you can do for your business.

It puts a huge amount of pressure on you, and I’ve seen many instances where businesses have failed purely because the owner couldn’t handle the mental aspect of having this big debt looming over them.

There are a few different types of bank lending available, such as actual business loans, where you’ll have to create a business plan and present it; asset based loans, this means getting a loan based on the value of an asset you own; a remortgage, getting a loan on your house; and then finally a personal loan, which is simply a loan in your name.

Though there are of course differences between all of these, I won’t go over that here (you can find plenty on Google about it) as they all share the negative points that I mentioned above.

Whichever way you look at it, getting a loan to finance your business means you’re starting off in debt, you’ll have repayment deadlines to meet, interest will be accumulating etc. etc. For me personally, this just isn’t how I’d want to start a business.

And though I didn’t mention it above, using a credit card obviously falls into this category as well (it’s just ten times worse!). Please don’t ever consider this as I can guarantee you that it won’t end well!

Borrowing From Friends and Family

After exhausting bank loans, most people then look into/start thinking about borrowing from friends or family.

After all, this seems like a great idea, right?

It’ll be a lot easier to convince them to give you the money. It won’t cost you a huge amount in interest. You won’t have a large amount of pressure to start repaying straight away/won’t have a bank trying to take your assets and hounding you for money if you miss a payment deadline.

Well, in theory this might all sound kind of true, but from my experience, in reality it just doesn’t work like that.

There’s a reason people say “don’t mix family and friends with business” and that’s because it nearly always ends up badly!

I’ve seen so many people say to themselves that for them it’s different, they’re so close and they’re not going to fall out over money etc.

But when it came down to it, none of that was true and they did fall out and have big personal problems as a result.

It’s really not worth damaging your relationships, which are so much more important anyway, so please don’t consider this option.

Partnerships

Now I know some of you may now be thinking “alright, I won’t borrow money from friends or family, but what if we go into business together?”

And actually, I think that a partnership can be okay. Of course some of the problems remain and there are instances where this will lead to personal issues, but it’s much less common than when simply borrowing money.

Plus there are some positives that can come from going into business together with someone else – one is of course you gain finance so if you go 50-50 you’ve doubled your start up capital, and two is that you also have somebody else to help with decisions and running the business.

But this actually brings me on to an important point; you need to make sure that everything is 100% crystal clear between you and your business partner in terms of:

• Work – who will do what, how much time will each of you spend on the business etc.

• Money – how much is each of you putting in and how will the profit be split (you need to be very specific here).

• Future Plans for the Business – what are the long term goals for each of you? Are you looking to build up the business and then sell it off or work towards outsourcing everything and creating a passive income?

It’s no good going into business with someone if you have opposite goals, as that’s just going to lead to problems and damage the business in the long run.

Government Loans/Grants

This is actually a very interesting option but it isn’t something that’s very well publicised and many people aren’t even aware that these exist!
But yes, if you’re in the UK then in certain circumstances you might be eligible for a government business grant or loan.

One example is the Start Up Loans scheme; the Start Up Loans company is a government backed scheme that offers financing and mentorship for new businesses (its chairman is James Caan, who a lot of you may remember from Dragon’s Den). The loans range from £500 – £10,000 and if you’re accepted, you’ll also be coupled with a mentor from your region/industry to offer advice and support.

The interest rate on these loans is fixed at 6% and repayable over 5 years.

Previously you had a 12 month repayment holiday so only had to start paying for the loan one year into your business, which was a great feature, but unfortunately that doesn’t appear to be the case anymore.

You can read more about the scheme and get info on the application process here: http://www.startuploans.co.uk/startups/

Another alternative is the Enterprise Programme from the Prince’s Trust which offers 3 year loans of up to £4,000 but there are some conditions for applying.

You have to be between 18-30 years old, unemployed or working less than 16 hours per week. Plus you can’t apply if you’re in full time education, on a gap year, or if you’ve recently graduated.

Again, you can read more about this scheme and how to apply here.

Thirdly, there is a programme run by UnLtd that offers support and funding (of up to £5,000) for “Social Entrepreneurs”.

This one is slightly more unusual in that to apply, your idea must “have a real social impact” which is of course quite vague. Of course this won’t be applicable to everyone but if you think your business might be eligible then it’s something you can look into a bit more. Here’s a link to their site:

https://unltd.org.uk/level-1/

As new programs and schemes are introduced and changed all the time by the government, it’s impossible for me to go through all of them here. But luckily enough there is a terrific webpage that compiles all of them, split into different categories (grant, loans, support etc.) which you can use to search for support and finance that’s suitable for you (you can search by location, activity, size of support etc.) so please check that out for the most up to date information:

https://www.gov.uk/business-finance-support-finder

Angel Investors/Crowd Funding/Venture Capitalists

Most people should have heard of all three of these but might not know exactly what they mean.

Angel Investors are individuals who provide start up funding for a business in return for an equity share (Dragon’s Den is the easiest example to give).

Crowd Funding is exactly as the name suggests; you raise the needed capital for a business from small contributions from a large number of people, usually in return for a stake in the business.

Venture Capitalists provide capital to new/start up companies in return for a percentage stake. These are usually funds (pooled from multiple people) rather than a single individual like with angel investors.

I’ll start with Venture Capitalists, as that’s the easiest one to get out of the way – basically, it’s very unlikely to be a suitable strategy for you. Venture capitalists are aimed at very high potential companies (with a focus on novel technology) and you won’t be getting funding for an eBay business like this!

Next, Angel Investors – this is slightly more viable but again not really something that I’d suggest. They’re mainly focused on bigger ventures and you do usually need to have some sort of prior connections for this to really work.

Lastly, Crowd Funding… this is actually an interesting option and something that has really taken off recently, with the likes of kickstarter, though that’s not really the same in that you’re more pre-ordering a product rather than investing in exchange for a stake in the company.

But once again, some similar difficulties arise. Crowd funding is better suited to more novel ideas and offline ventures and though you hear of so many success stories from crowd funding, I feel that for it to be a big success, you really do need to have an existing online presence or business to use to propel your fundraising.

Plus all three of the options which I’ve just run through require a lot of time! There’s all the due diligence, preparing your pitches and putting everything together – this can easily take 3-6 months so it’s not a quick source of funding by any means.

If you are interested in looking into crowd funding more, as from the three, I think that it’s the most viable, here are some links:

https://www.crowdcube.com/
http://www.crowdfunder.co.uk/
https://www.seedrs.com/
https://www.kickstarter.com/

Conclusion

Now that I’ve covered all the options that I wanted to go over, I’ll quickly sum up my general thoughts on the topic.

While it may seem that I’m being overly cautious/pessimistic (maybe I am!), I do think that the best option is to take it slow and launch a business with your own money, that you’ve raised yourself.

There are just too many negatives involved with most of the alternate options out there, whether that’s starting off in debt, giving up a large stake in your business or losing a lot of control (that’s one of the main reasons for starting your own online business, so that you’re in control), I just feel that the downsides outweigh the positives, in a large majority of cases.

Of course there are instances where one of these options would be a great choice for you and your business, and that’s why I wrote this article – to highlight what’s out there.

But overall, my advice is to keep things simple.

Launch at the level you can and build up from there. If you really don’t have enough to invest a decent amount to start your business, then use the ever popular Used Goods Concept that I revealed here: How to Start a Profitable eBay Business with £50.

Or simply save up money/get a second job, and in 3-6 months you’ll have enough money to launch your business 100%, without cutting any corners.

Whatever the case, there are a LOT of options out there so I hope that this blog post has at least simplified things for you and provided a good basis to continue your research.

As always, if you need any individual advice or help, then please don’t hesitate to post below in the comments section and I’ll answer you personally.

Otherwise, until next time!

All the best,
Andrew