Start Guide to eCommerce Business Grants & Loans
Beginning a new business can be the most exciting time in your life. Growing a business can be exciting too as it indicates that the initial plan will pay back. However, one of the main obstacles to both is funding in the form of funds to start or grow. It's great news that by doing a bit of research it is possible to find small-scale business grants as well as loan opportunities.
It's all you need is a bit of guidance on where to look. For that, you've found the perfect place.
What is the difference between small-business grants and loans?
A small business grant is in essence cash for free. You don't need to pay it back, never. But, the majority of grants come with stipulations as well as restrictions on who will be awarded the grant and what the grant can be utilized. They also usually have a cumbersome application process in addition to the IRS usually considers grants to be business income, which means that it's taxable.
A small-business loan, or financing, is money granted to you, which you will have to repay, just like a house or auto loan. Small business loans can be charged the interest while some have a fixed fee.
Types of small business loans
There are basically three forms of small-business funding:
- The term "debt finance" is when an institution lends the borrower money, and then you are required to repay it generally with interest and according to a predetermined schedule. Sometimes they also want an alternative form of collateral, so that in the event of default on the loan, they will take the property you entrusted to them.
- Equity funding is when another business or partner gives you a loan in exchange to a share of the company. The typical scenario is that you'll be paying them a percentage of your revenue going forward, and the business loses some autonomy as you've become the benefit of a business associate. But the loan is typically interest-free.
- The term "revenue-based" financing is when you get the loan but return it with part of your earnings instead of a set monthly amount. This will be discussed more in the future when we discuss Payments and Stripe Capital and Wayflyer.
However, within these groups, there are some variations. The majority of loans are provided by banks, but some are offered by the government, and others through private firms that are specialized.
Fundera is an terrific tool to find out more information about financing for small businesses. It also lists specific banks and the credit scores they require. Certain lenders and banks offer loan options for specific situations that may be relevant to you. Find out more information about these financing options at Fundera:
- Equipment financing: a credit that is used to pay for an item of equipment
- Short-term business loan: an alternative for rapid turnaround and urgent needs
- Merchant cash advance is a alternative to revenue-based financing
- Startup loans: financing given specifically for new businesses
- Credit line for business is a loan with a variable rate that makes money available as you require it
- SBA loans: Financing via the Small Business Administration, including microloans
Factors to consider when pursuing small-scale business finance
The three most important factors you want to think about before applying or accepting an offer to take out a small business loan are ownership, control, and the risk.
For equity-based loans, as an example, you give up certain percentage of the ownership stake in your business, and you lose some control over the taking of the decisions. These loans typically have no interest, so they're low risk.
A loan for existing small firms: introduction + Stripe Capital
Finance can help strengthen and fuel your growing business, helping you expand and grow faster. With fast, flexible financing, + Stripe Capital enables U.S.-based companies to invest in growth and help stabilize the flow of cash.
With and Stripe the loan offer is extended by Stripe's banking partner, Celtic Bank, based on variables like the sales of your business and its history of payments. The application isn't lengthy and there's no credit test for consumers.
Once you receive an offer via email or in your Dashboard messages, you are able to pick the best size for you and apply in minutes. For approved companies, funds usually arrive in as short as one business day.
Contrary to many loans provided by traditional banks, + Stripe Capital charges one fixed fee, and the fee is never subject to change. It means there's no interest charges or late fees to be concerned about. Repayment also happens automatically, by a set percentage of your transactions, and is dependent on your revenue. A fixed percentage will continue to be taken out until the entire amount due is paid.
For example, suppose you get a $20,000 loan through Stripe Capital, and they provide you with a 10% fee. This means that your total amount is $22,000, which is a loan amount of $20,000. You also pay a fee of $2,000.
In the example above, Stripe Capital has established a payback rate of 12.5%. This means that every day, Stripe Capital will automatically deduct 12% of income from your account each month until the loan has been paid in full. This is beneficial for you because it means your payment will rise and fall based on the amount of revenue you earn, meaning your payments will never over your revenue. If you make no revenue during a particular month, then there isn't a single amount to pay.
Imagine that one day you earn $900 in revenue, and on the next day, you make $1,300. Your payment on the first day (assuming a 12% payment) will be $108 then on the next day, it's $156.
A different low-risk business financing option: Wayflyer
Instead of interest, Wayflyer charges a fixed fee. And because it's a revenue-based loan, there is no possibility of falling into default, because revenue-based loans adjust the payment each month based on the amount of income that your business generates.
Types of small business grants
Unlike loans, which are quite simple to grasp, grants can be hard to find and navigate through all the conditions and limitations.
In general, there are two kinds of grants: those granted by government and private ones. Private grants typically come from foundations, businesses, or companies.
There are grants available for any of the many very special situations and kinds of business, including:
- Awards for contest winners
- Research and development companies for scientific research
- Companies owned by women, minorities or veterans
- Agricultural and rural businesses
- Health and beauty businesses
- And there are many more...
So when you go to a site like Grantwatch, which requires a cost if you want all the information about a grant you'll find a myriad of possibilities that are updated regularly. Before your mouth starts getting watery, be aware that you won't qualify to receive many of the grant opportunities, as they may be for very specific situations like those listed below.
We'll show you some resources for grants that are more extensive in a bit.
Requesting small business grants
Before you apply to receive a small business grant, your first step is to narrow down the grants your business actually qualifies to apply for. You don't need to fill with a lengthy application for a small business grant there's no way to be sure of winning because you don't meet the prerequisites.
In the case of, say, being part of an ethnic minority that you belong to, you'll have the opportunity to apply for a number of small-business grants for minority businesses. You'll have a better shot at those than the general grantsbecause there'll be less competition, and because those grants were created specifically for companies like that of yours.
For existing businesses, you're going to want to have a well-written business plan since most grant applications have very precise inquiries.
They would like to understand why you are in need of this grant.
They would like to be sure that their money is funding an investment in a profitable business or expansion with a high-potential and is in line with their motives in granting the grant. If you haven't revised your business plan for a long period of time, it's a good idea to start by updating your plan.
If you have an existing business, you'll also want up-to date information regarding the amount of revenue you earn each year, your number of employees as well as the Employer Identification Number (EIN), as well as other essential information.
Then, nail down your pitch and then schedule time to respond to every question on the grant applications.
The process of applying for small-business loans
The process for applying for a loan for business depends extensively on the kind of loan you're seeking.
If you're going for a federal small business loan such as the 7a loan, that will entail an entirely different procedure unlike banks. There are usually additional hurdles to cross to get government funding, and understanding the maze on the internet could be a challenge. However, federal loans may be easier to qualify for, so it may be a good alternative to bank loans.
You've seen that there are a variety of kinds of small-business loans, and the Fundera site lists the specific institutions and banks which offer the various types.
When you are applying for small-business loans, know:
- Your credit score
- What are the reasons you'll need the money
- Your average monthly revenue
- The amount you're seeking
- Your plan for paying to repay it
Where to locate small-business grant and loan sources.
Prepare yourself, for there are a myriad of sources in this regard. They differ in their ease of use and navigation.
- The Nav Small Business Grant contest. It awards a $30,000 grant to small-sized businesses each quarter. It also awards a second-place grant award, to companies that participate and win their contest. This grant has almost no limitations.
- FedEx grant contest. FedEx runs their contest multiple times per year, and the winners are also awarded the benefit of a credit for print services as well as a site audit along with other perks. The prize for the top spot is $50,000.
- Visa global innovation grant. Visa's grant contest comes with certain requirements that are more stringent that the previous two contests however they select four winners every year.
- Grantwatch and Opengrants. They are grant-finding companies that charge a fee which are excellent places to search for smallergrants, which are based on niches that are otherwise difficult to locate. It is possible to search for grants by location, kind of grant, business kind, or other criteria.
- US Chamber of Commerce grants. This is another great source that has all types of grants. It also includes a great listing of small-scale general business grants which are open to all kinds of businesses, in addition to ones that have a more limited scope.
- Self-employed business grants. If you're self employed and an NASE member NASE, you may qualify for a small-business grant each month, which can amount to 4000 dollars.
And there are other lists of grants from Nav, Bench and even the the federal government. Government grants have a lower probability of qualification, because they typically only fund specific types of business.
What's the deal with the Small Business Association?
The SBA is a federal agency, and with a name like that, you would think they'd provide grants in support of... small companies. The majority of their funding goes to local and state-funded programs that help small-sized businesses.
If you're looking for grants from the government for grants, you might be better off using the state and local level. Its Economic Development Directory webpage won't direct you to grants in the first place, however it does have clickable maps that can be searched and searched, by state, that will connect you with a number of local resources.
Small business loan resources
The Federal mall mall business loan program has a number of choices that won't be useful to most companies. The 7a loan program is the most common oneand should be considered in case you are looking for small-scale company funding.
Go get 'em!
If you're searching for a way to give your business, whether it's new or established, the financial edge, I hope you're now feeling a bit more motivated, energetic, and informed.
Here's what you can do:
- Make sure you update your business plan.
- Find resources that appear to fit your business and situation.
- Look for small-business grants and funding options that you have an opportunity to win.
- Speak to your the most trusted mentors and advisors they are available.
Note that with + Stripe Capital, all loans are made by Celtic Bank, a Utah-Chartered Industrial Bank, Member FDIC. All loans are subject to credit approval.