Unfortunately, nothing is free or easy in this world, and this includes how to start your online business. Here’s an online business guide regarding the important topic of financing:

No matter what the size of your online store or service, you need to have an online business plan that sets your financial direction, including goals and objectives.  This plan will change periodically with updates and new milestones for your business, especially when you become larger and/or if you decide to take your part-time business full time or acquire additional sites.

A formal business plan is needed to approach a funding source, whether this is from a private  investor or a bank.  The financial part of your business plan includes a proforma, or a three-year financial projection of revenue and expenses, cash flow, income statements and a balance sheet.  It  is a good idea to have these financial documents on hand regardless of whether or not you decide to apply for funding. They keep you informed of your cash flow in and out.

 How much working capital you need when opening your online business will depend on a variety of reasons, such as business size, specific products or services,  amount of inventory, and marketing efforts required .  

 Always have a financial source that covers you for the present as well as  future needs. You do not want to be in a position where you spend all your available funding to start your business and then have nothing left if all does not go according to plan.  For example, online businesses are doing quite well despite the present recession, but not as well as anyone had planned a couple of years ago. Now, extra cash is coming in handy for many businesses.

On the other hand, what if you find a great way to expand your products or services?  You will need available cash to take advantage of this growth opportunity.  As your business grows, your capital source must do the same.

Funding  Sources
 Unless you already run another business nd have built up credit with a financial institution, it will be very difficult for you to get a loan.  Even when someone has established credit with a bank, it may be difficult to get e-commerce funding.  Financial institutions like traditional types of businesses, and e-commerce is too much of an unknown for many of them.

Even if you can get funding from a bank, the rate of the loan may be too high to make it worth your while.  Or, you may have to put your house, car or other personal assets up as collateral.

Small online businesses have several other options when it is necessary to find funding for expansion and growth. Here are three of the more popular choices:

Capital from Family and Friends

Some business owners do not want to ask family and friends for a loan. However, if everything is clearly spelled out in a contract and the person loaning the money understands and accepts the risk involved, it may be possible.

This is one of the reasons why your business plan is so important. The investor wants to make sure that you are serious about your business and are considering all financial aspects.

Seed capital provides funding for startup, operations and growth. Potential investors will want to see projections and your plan for expanding the business over a given time. Seed capital is not normally a large amount of money, but is often given to the business owner in allotments over time. You will need to demonstrate how each period of funding helps maintain the business and meet set goals.

Peer-to-Peer Lending

It doesn’t have to be a friend or family member who lends money. Over the past several years, billions of dollars have been lent from one person to another who do not even know each other. 

With the recession and it becoming even more difficult to get bank and even Small Business Administration loans, a growing number of borrowers are asking other people for startup or growth money.