What Is Revenue-Based Financing and Why Is It a Perfect Fit for eCommerce?

They say that money can’t bring happiness… That’s true, but if you run your own business, money can at least help you grow it. It is virtually impossible to upscale any online store without financial resources. Why are these so important now and where do you get them from? Read on to find that out!

More eCommerce Stores Means More Competition

The data leaves no doubt: eCommerce in Poland alone has accelerated significantly in the last 2-3 years. While before the coronavirus pandemic the industry grew by over a dozen percent annually, during the pandemic this increase has been at the level of 20-30 percent. Currently, there are approx. 51 thousand online stores in Poland, and the value of the domestic eCommerce market is estimated at around 20 billion dollars. According to some forecasts, the latter number may double by 2025.

This is good news – more and more Poles buy online and they do it more often. However, there is a flip side to that coin: an increased competition that increases the need for marketing expenses to build customer awareness and win customer attention. Which raises the key question:

Where Do You Get Money From for Growing Your Online Store?

Basically you have three options here: government / EU funding, bank loans and independent investors.

Government and EU funding can be tempting as it usually doesn’t have to be repaid (or at least not in full). The application and settlement process, however, is very time-consuming and labor-intensive. And even if you manage to obtain such funding, it may turn out that the number of restrictions imposed on the way you spend it will paralyze the actual operation – and thus question the usefulness of the entire undertaking.

Banks, in turn, are happy to lend money to companies with low interest rates, but in order to obtain it, you must meet strict criteria (including some personal guarantees and safeguards that are, in practice, unattainable for small and new businesses). You also need to buy additional financial products from your bank. And the debt repayment process is not flexible – the schedule is predetermined and in no way connected to the actual level of sales in your online store.

And what about an external investor? Once you get his/her attention and meet the strict requirements, they can provide you with solid funding that you will not have to pay back. Additionally, you will get access to their business knowledge and network. However, you will have to pay dearly for these benefits – you will lose some ownership and control of your online business. In fact, the more your eStore grows, the more you lose, as in return for financing you give the investor a percentage of the shares in your company!

To put it briefly: traditional ways of obtaining external financing for e-business involve complicated processes, rigid rules, high costs and a lot of time. And you don’t have that much time because of the increased competition… Fortunately, you have one more option to consider:

The Alternative: Revenue-Based Financing

Revenue-based financing is a financing model in which the repayment schedule depends entirely on the actual scale of your online store’s operation. You are offered financing based on the actual data on the growth of your eCommerce store. And it is intended that you pay back that money efficiently – in the end, the greater the effectiveness of your business activities, the faster you will return the money you borrow along with the commission.

This financing model has many advantages. First of all: it doesn’t take that much time. Since you need funding for activities related to the development of your eStore in a competitive environment, you cannot wait too long for a decision. Second: simple and transparent financing rules, with no verification of your creditworthiness or having to give away shares in your company. Third: the financing is tailored to your actual needs and capabilities – the repayment schedule is adjusted to the volatility of the sales level in your eStore, thanks to which your accounting liquidity is not threatened. And fourth: the company lending you money also shares its knowledge and experience in the practical use of this financing, so that it actually brings you the intended benefits.

Too Good To Be True? Give It a Try!

So, if you have been running a promising online store for several months now or you have a medium-sized eCommerce business that needs an ad hoc financial injection for e.g. marketing activities, try this alternative financing method. We guarantee that you will be pleasantly surprised!

This article was written in cooperation with Jakub Pietraszek, CEO & Co-Founder at Booste.

Written by
Jarek Wasielewski
Digital Content Specialist at ExpertSender
After work: local historian. Double bass enthusiast.
 
 
 
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