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Funding 101: The Best E-commerce Funding Options for Scalable Growth 

As you scale your e-commerce business, you might also be thinking about better ways to serve your customers. You may need increased inventory, new products, and supercharged marketing — all of which require cash. 

In this article, we’ll take a closer look at the range of e-commerce funding sources available so you can find your best-fit funding solution.  

A Simplified Guide to E-commerce Funding Options 

How Do Most E-Commerce Businesses Get Funding? 

E-commerce financing is a type of business financing designed to meet the needs of online merchants and retailers. It may come in the form of a term loan, line of credit, revenue-based financing, or other funding solution intended for e-commerce companies. 

As an e-commerce merchant, you know traditional banks can’t keep up with the pace of your business. You need quick, consistent cash flow to fuel your growth while avoiding reputation-killing stockouts and other costly setbacks.  

But banks tend to evaluate e-commerce sellers based on metrics that don’t truly reflect your success and can take months to assess your eligibility for a loan, resulting in a large gap in funding options for many online businesses. 

To make it possible for e-commerce businesses to access funding, more e-commerce financing options are beginning to emerge — each with its own set of advantages and challenges. 

SellersFi’s Holistic Financial Solutions 

At SellersFi, we know e-commerce. After reviewing the funding solutions in the market, our co-founders realized something was missing. 

With SellersFi, our goal is to deliver the first truly comprehensive financial solution built entirely for e-commerce businesses. Whether you’re a marketplace seller, DTC brand, B2B business (or hybrid), our complete suite of strategic financial solutions makes scaling fast and easy. 

Our e-commerce working capital isn’t a traditional loan — it’s a flexible solution that gives you the capital and cash flow you need for accelerated, sustainable growth. 

SellersFi Working Capital empowers you to make the best choices for your business, giving you up to $10M to invest however you want. The Amazon Revenue Advance gives you no-delay payouts, delivering your total earnings within two days, so you can spend more on ads, stave off stockouts, and keep cash flowing. And with SellersFi Invoice Factoring, you can get marketplace and retailer payouts in as little as 48 hours, no matter where you sell. 

Pros 

  • Rates can be as low as 1% 
  • Approval in as little as 48 hours 
  • Terms are flexible and customized to your needs 
  • No impact on your credit score 
  • Dedicated account manager 
  • Free analytics for insights into your business 
  • Instant access to an International Wallet for global business 

Cons 

  • None we can think of! 

Bank Loans 

From a bank’s point of view, an online store is a relatively new business model, and the banking industry is still trying to figure out how it fits into portfolios.  

Though there are some early signals that banks are slowly starting to embrace e-commerce, most still don’t offer the flexibility merchants want to see in a funding option. A bank also requires quite a bit of paperwork to grant a loan, a process that can take weeks or even months — an eternity in the fast-paced world of online retailing. 

Pros 

  • Banks don’t ask for revenue share as a form of repayment. 
  • The interest rates are generally low, ranging from 3% to 13%. 
  • The repayment period can be spread over time with low monthly payments. 
  • Banks don’t micromanage how you use the funds once they disburse the loan. 

Cons 

Credit Cards 

Traditionally, credit cards wouldn’t be considered a viable source of business funding. Until 2009, retroactive interest rate increases were commonplace in the credit card business. This made credit cards too volatile as a source of business loans since card issuers could raise rates on existing loans unrestricted. 

The CARD Act of 2009 changed the credit card landscape by creating regulations to protect borrowers and cap credit card fees, making credit cards a more attractive source of financing for growing businesses. 

However, at their core, credit cards are designed to cover day-to-day consumer expenses. Many of them simply don’t offer a high enough balance to take an already established e-commerce business where it needs to go. 

Pros 

  • You won’t have to share revenue as a form of repayment. 
  • Some credit card companies offer reward programs, like points, airfare, or cash back. 
  • The application process is faster than a bank loan. 
  • Revolving credit allows you to borrow again once repayments are made. 
  • You won’t be required to put up collateral. 

Cons 

  • Credit cards can sometimes charge an annual fee in addition to interest. 
  • Failing to repay your balance on time could damage your personal credit. 
  • Low limits might not be enough. 

Marketplace Loans 

Some e-commerce platforms offer lines of credit to qualified sellers to help them fill cash flow gaps.  

These solutions can often be an effective way to navigate slow seller payment schedules and account reserves required as part of doing business on the marketplace. 

A marketplace loan can give you access to anywhere between $1,000 to $750,000 in funding, depending on your business size and sales history. The marketplace then deducts a percentage of your sales to repay the loan. 

Pros 

  • Fast application process since the marketplace already has your information and sales history. 
  • Your credit score won’t usually factor into the approval process. 

Cons 

  • Marketplace loans are invite-only. 
  • There may be restrictions on how you can use the funds. 

Merchant Cash Advances 

Merchant cash advances (MCAs) have been quick to gain popularity with e-commerce businesses because they’re easier and faster to secure than traditional bank loans. The approval process is quick and simple, and the rejection rate is low. 

Since MCA providers offer you a lump sum based on your average monthly sales, you don’t have to prepare endless documentation to get approved.  

Pros 

  • Don’t need to share business plan or credit score to get approved. 
  • You won’t be asked for collateral or personal assets. 
  • Approval times can be as little as 24 hours. 
  • Payback is based on a percentage of sales, so you pay less when you sell less. 

Cons 

  • MCA factor rates can be as high as 1.2 to 1.5, meaning 120-150% of the original loan. 
  • MCAs may also include hidden fees. 
  • Providers can place restrictions on your business. 

Equity Financing 

Equity financing refers to any kind of financing where you sell shares of stock in your company.  

This can include venture capital funding, angel investments, crowdfunding, initial public offering (IPO), or Small Business Investment Company (SBIC) investments. Equity financing can give you more flexibility to infuse cash into different aspects of your business since you don’t have to dedicate a portion of your profits to paying back loans each month. 

Pros 

  • Less liability and risk for merchants. 
  • Equity financing isn’t tied to your credit score. 
  • Depending on the source, equity financing can come with expert guidance. 

Cons 

  • You have to share a portion of your profits with your investors. 
  • You may wind up with less control or ownership of your business. 
  • Equity financing can take months to obtain, and extra “campaigning” effort. 

Venture Capital 

For startups specifically, venture capital (VC) funding is, in some ways, still the gold standard of e-commerce funding.  

Getting backed by a VC takes hard work. But the right match — or matches — can land you millions in funding, and a story on the front page of TechCrunch. 

If you partner with a VC accelerator or incubator program, that funding can also come with resources like mentorship and training programs. 

Pros 

  • Venture capital investments can be significant. 
  • Investors assume the risk if the business can’t afford to repay. 
  • VC investors can support you in other ways, like expert advice and networking opportunities. 
  • VC funding from a well-known firm can give your company credibility. 

Cons 

Private Equity Investors 

Private equity can offer your e-commerce business a stable financial base for growth. Top private equity firms like Advent International, Blackstone, and Investcorp have been betting big on e-commerce. They see the potential in e-commerce growth and they want in on the action. 

The tradeoff is not only the percentage of equity and profits you relinquish, but also the level of control you hand over when working with this type of funding. 

Pros 

  • Private investors may not require a credit history check. 
  • A private investor can offer business expertise to help you grow. 
  • Private investors assume the risk if the business can’t afford to repay. 
  • You may be able to access high amounts of funding. 

Cons 

  • Private investors receive a share of your profits. 
  • There is potential for conflict from misaligned growth goals and vision. 
  • Increased pressure to achieve a high level of sales and profits. 
  • There may be competition or disagreements among varying investors. 

Crowdfunding 

Within a few years, crowdfunding skyrocketed into a billion-dollar business, and in 2016, the JOBS Act gave it new degrees of legitimacy. 

Crowdfunding sites like Kickstarter, Patreon, and Crowdfunder have been responsible for the launches of wildly popular products like Exploding Kittens and the Oculus VR headset.  

There are four basic categories of crowdfunding — reward-based crowdfunding, donor crowdfunding, debt crowdfunding, and equity crowdfunding. The success of any crowdfunding campaign relies heavily on social media and marketing efforts. 

Pros 

  • No need to demonstrate good credit history. 
  • Donor- and reward-based crowdfunding don’t require you to pay funders back. 
  • Successful launches can double as publicity campaigns. 

Cons 

  • There are limits to how much you can raise and how investors can contribute. 
  • Success depends on your ability to generate interest. 
  • If you use debt crowdfunding, you have to pay back many individual investors. 
  • If you use equity crowdfunding, investors may want a say in your business. 

Asset-Based Lending 

Asset-based lending (ABL) can be a good option for companies that hold substantial receivables, inventory, equipment, real estate, or other collateral. ABLs rose in popularity due to the pandemic, and the global ABL market is expected to increase even more shortly. 

ABLs are especially useful for consumer packaged goods (CPG) businesses and those with a high number of seasonal ebbs and flows

Pros 

  • You can qualify even if you’re considered a risky borrower. 
  • If you acquire more assets, terms can be adjusted to give you access to more funds. 
  • ABLs are often structured as revolving lines of credit, with terms extending up to 5 years. 

Cons 

  • ABL lenders can impose restrictions on your business. 
  • It can take 4-6 weeks to get access to funds. 
  • Interest rates are higher than for other types of loans, reaching up to 17%. 

Not sure which funding solution is right for your business? Try SellersFi’s Product Matcher and find your best-fit solution for your business and goals. 

Get the Best E-commerce Funding for Your Business 

Financing can feel complicated, and it can seem like some lenders want to make it even harder. They’re watching their backs when they should have their eyes on the future of your business. 

At SellersFi, you don’t just get a lender. You get a partner who wants to see you win. 

Contact us today to learn more about how we can help you reach your fullest potential with e-commerce funding solutions built with your needs in mind. Or, if you’re ready to start, set up your free SellersFi account today. 

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