Diamond Whites was on a mission to make oral care more accessible. But as the company grew, CEO and Founder Ben Reed realized its customers needed flexible payment options. With fewer customers paying upfront, Diamond Whites needed capital to cover the cost of goods.
The company had used other funding options in the past but had been stifled by all the restrictions. Reed wanted a funding solution that could offer more flexibility, without the high-interest rates.
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 to help you pinpoint the solution that best aligns with your goals and vision.
A Simplified Guide to E-commerce Funding Options
- Traditional Bank Loans
- Credit Cards
- Marketplace Loans
- Merchant Cash Advances
- Equity Financing
- Venture Capital
- Private Equity Investors
- Bank Overdraft
- Crowdfunding
- Asset-Based Lending
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.
1. SellersFi’s Holistic Financial Solutions
At SellersFi, we know e-commerce. After reviewing the funding solutions in the market, we realized something was missing.
We set out 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 a $5M credit limit 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 0.5-1%
- Approval takes only 24-48 hours
- Terms are flexible and customized to your needs
- No impact on your credit score
- You get a dedicated account manager
- Includes free analytics for insights into your business
- Plus instant access to a prepaid business card and Digital Wallet
Cons
- None we can think of!
2. Bank Loans
Let’s start with the most classic form of business lending — the traditional bank loan.
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 in.
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
- Banks have challenging approval requirements
- Set monthly repayments could cause further cash flow issues
- Larger loan amounts can be difficult to secure
- Some banks may require you to use personal assets as collateral
3. 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 airfare and 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 charge an annual fee in addition to interest
- Failing to repay the loan on time could damage your personal credit
- Low limits might not be enough
4. 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.
Amazon Lending and Shopify Capital are two examples of this type of e-commerce funding.
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
- 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
5. 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. Unfortunately, some MCA lenders (by no means all) can be predatory.
Pros
- Don’t need to share business plan or credit score to get approved
- Typically won’t require or impact your credit score
- You won’t be asked for collateral or personal assets
- Approval times can be as little as 24 hours
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
6. 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 and ownership of your business
- Equity financing can take months to obtain
7. 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
- VC funding from a well-known firm can give your company credibility
Cons
- Getting VC funding takes a lot of time and energy
- It can be even harder if you have diverse leadership or don’t show unicorn potential
- Shareholders may want a say on how things are run
- Pressure to perform can be high
8. 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
9. Bank Overdraft
Some business bank accounts will grant you an overdraft line of credit. When your business checking account dips below a $0 balance, the bank will continue to approve any transactions up to a pre-agreed amount. You may pay a fee on each overdraft charge, or you may only pay interest on the total amount, depending on the bank.
A bank overdraft can be useful to avoid last-minute cash flow interruptions and other unexpected contingencies.
Pros
- The overdraft limit is pre-arranged so you don’t incur more debt than expected
- Interest rates may be low to moderate
- Fees can be low or non-existent
- Funds are convenient to access
Cons
- Overdraft limits may not be high enough for your needs
- If you overdraft too often or don’t pay your balance it could impact your credit score
- Some banks will flag or close your account if you overdraft too often
10. 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
11. 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%
Get the Best E-Commerce Funding for Your Business
After considering all their options, Diamond Whites decided to partner with SellersFi.
“SellersFi offered the flexibility and the loan profile that we required,” says Reed. “They help you maintain equity and grow your business at the same time.” With a custom-curated, flexible funding package created by SellersFi, Diamond Whites was able to grow its business 110% year over year.
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.
