We won’t sugarcoat it. The post-Brexit e-commerce lending landscape is a tough nut to crack.
As financial institutions in the EU grapple with the uncertainty and risk exposure Brexit has thrown their way, growing e-commerce businesses bear the brunt of the fallout, with 34% of budding businesses feeling Brexit will have a negative impact.
You can chalk this down to fear that consumer confidence will crumble and another recession will grip the economy, causing people to halt their spending. While the economic repercussions are still taking shape, the fear is present and real—and it’s prompted traditional financial institutions to pull up their funding ladders, leaving e-commerce businesses to fend for themselves.
So, where does this leave your e-commerce brand? And is it even possible to secure e-commerce funding in the Brexit era?
The journey to securing capital post-Brexit can be a bumpy ride. So, fasten your seatbelt, and let’s get into some of the most pressing lending issues, find out which funding options are available now, and take a closer look at some of the must-know tips for securing capital in the murky Brexit waters.
E-commerce Lending Beyond Brexit: What We’ll Cover
6 Painful Funding Headaches You Can Thank Brexit For
E-commerce Lending: Top of the Tops and Flops
Quick Tips to Dodge the Burn of E-commerce Funding Lags While on the Hunt for Cash
The Roadmap for Funding Your Big, Bold E-commerce Goals Despite Brexit
6 Painful Funding Headaches You Can Thank Brexit For
Even before the Brexit saga began, traditional lenders were already skeptical about funding e-commerce businesses, leading most sellers to view the lending ecosystem as inefficient and insufficient.
And they aren’t wrong.
Financial institutions’ reluctance to back e-commerce brands has only amplified since Brexit became official, due to their crippling fear of the unknown.
And the situation has caused a bunch of problems for e-commerce sellers:
Suspiciously strict requirements: These days, it can be a fight to get your foot in the door, let alone get funded by some traditional financial institutions that claim to be e-commerce lenders. This problem occurs even when you have a profitable business with a sales history and customer base to prove it. It can feel like the banks have purposefully heightened their requirements to wean out the very businesses they are supposed to serve.
You may have to take on more funding than you need: Uncertainty in the e-commerce lending sphere means if you do get funded through a traditional provider, you may have to grab the cash you need for other projects or issues now. This approach can be expensive and risky in the long run.
Collateral demands that make you want to cry: You’ve already poured out your pockets into launching and growing your business, but traditional lenders are rarely impressed by your sacrifice. They want more in the form of cold, hard collateral. This demand is one many entrepreneurs can’t meet for two reasons:
If they had the cash or assets, they would put it towards their business.
If they had the cash or assets, they would put it towards their business.
Difficulty proving results will stick: One of the most extraordinary things about e-commerce is that your brand can become a winner extremely fast, sometimes in less than a year. As an e-commerce business scales, it needs more capital but doesn’t have the sales history to reassure funders they’ll be around long-term. Nor can they prove their revenue spike isn’t just a lucky streak. This situation is problematic because many institutions aren’t willing to risk funding ‘promises’. They want to back proven, long-term results.
Not much flexibility in funding requirements: Outside of the newer e-commerce funding sources, financial institutions adopt an ‘it’s my way or the highway’ approach. They often dictate how much you get, when you get it, where you can spend it, and how you’ll repay. This setup conflicts with the agile nature of e-commerce businesses and can lead to lost opportunities and liquidity problems in the future.
Brexit woes at every turn: Can’t ship your goods? Brexit. Have production prices soared? Brexit. Can’t find a suitable funding option? You guessed it, Brexit. This loaded word has become synonymous with problems and for good reasons. Thanks to Brexit, there are now even slimmer pickings in the traditional funding sphere from the poor selection available pre-Brexit. It’s a hassle to secure funding—and even if you do, there’s now limited recourse in the EU courts if things go wrong.
After reading these nightmares, you may think it best to curb your goals of growing your business. But don’t lose hope—an increasing number of modern funding vehicles are filling the gaps traditional funders don’t want to serve, so it’s still possible to secure funding to help (and not hinder) your business growth. 🙌🏻
Let’s get into some of the fresher e-commerce funding avenues and their risks, plus a traditional one for comparison.
Cash Advances
The Good
It’s essentially ‘risk-free’: This funding option holds the bragging rights for being the most risk-free. You don’t need to put any money down, nor are there any monthly repayments to tie your business down as you sell off part of your future sales discount.
No monthly payments to weigh you down: You’ll pay a fixed interest sum in return for capital upfront—this means you won’t be subject to a loan or fixed monthly repayments. Instead, repayments will depend on how your business performs. When your business has a good run you’ll pay more, and you’ll pay less in the slower months.
Lightning-fast process: It’s an ultra-fast way to get your hands on some cash. At SellersFi you can go from application to funds in your account in under 48 hours.
The Bad (and The Ugly) of cash advances
You’ll give up some freedoms: Most funding providers will have rules on how you operate and repay. For example, you won’t be able to take cash payments as the funder will take their payments from your card takings.
Cash can get tight: Not only will you have to pay a high fee, but since you sell off part of your sales, you end up having less money going to your business. So, if new projects or issues arise, you may have to look for another funding source to bridge the gap, which is a slippery slope.
A lack of discipline can wipe you out: Since you won’t have a set payment to make each month, it’s easy to get carried away and take on more debt and projects than your business can handle.
Risk level: Low 🌶️
Working Capital
The Good
Worth the (low) risk:Working capital funding (like credit limits and revenue advances) tends to have a risk level that isn’t quite as low as cash advances, but their flexibility and interest rates are fair enough to be a safer option than traditional bank loans.
Enviable flexibility: The cash comes from flexible funding pots you can access once you meet the criteria. You can use the funds for almost everything business-related, like inventory, supplies, and even product development.
Boost your cash levels: One of the best advantages of working capital funding is you can use it to stabilize your cash flow. Plus, you don’t have to present any collateral. These make working capital another great choice for e-commerce stores with the revenue to make repayments comfortably to gain funding, without taking on too much risk.
The Bad (and The Ugly) of working capital
Cash can dry up: Since you have to make monthly repayments, you could face liquidity issues if your sales dry up or a disaster strikes.
Get ready to sign a guarantee: Many providers will ask you to sign a personal guarantee. While this is common practice, if your business goes under, you’ll inherit the bill.
A bad payment record sticks around: You can trash your company’s credit rating if you don’t repay, which will make it more challenging to secure funding in the future. In a climate where it’s already difficult to get e-commerce funding, this is the last thing you need.
Risk level: Low to medium🌶️🌶️
Invoice factoring
The Good
It’s a simple process: You’ll sell your due invoices to a factoring company at a discounted rate, they’ll tack on some fees and release the funds—and just like that, you’ve got some cash!
Get money—FAST: The makeup of invoice factoring makes it a hassle-free way to access cash quickly.
Stay debt-free: You won’t build debt with invoice factoring, so it offers a way to get funding without going down the e-commerce lending road.
The Bad (and The Ugly) of invoice factoring
It loosens your grip on your business: Although you won’t incur debt, most factoring businesses decide whether they’ll factor you based on your customer’s credit history since this indicates their ability to pay their bills. You must be systematic about who you sell to, which narrows your target customer base.
You’re charged high fees for your own money: Invoice factoring is an expensive way to get your hands on money you’ve technically already earned, which means less money flows back into your business.
It’s a finite resource: Even if you have excellent credit and customers, once you’ve factored all of your due accounts, or if you close the accounts receivable arm of your business, the party’s over. This makes invoice factoring an unreliable source of financing for e-commerce businesses.
Risk level: Medium 🌶️ 🌶️🌶️
Crowdfunding
The Good
Use your marketing skills to get funding: You take your business idea or product, put together an impressive marketing campaign on a crowdfunding platform, hit launch, and wait for people to invest in your business.
Options galore: There are three kinds of crowdfunding: debt, donation, and equity—giving you more choices in e-commerce lending options.
Have people fund your dreams: If you choose the presale route, you can fund your product launch via the funds you raise, then ship your goods to investors, which lessens the amount of cash you have at stake.
The Bad (and The Ugly) of crowdfunding
All work, little reward?: Even after all the hard work and investment into your crowdfunding campaign, there’s no guarantee of success and you still need people to buy into your idea to secure funding. So, if things don’t go well, you could walk away empty-handed.
Miscalculations can leave you out of pocket: You’ve got to get your numbers right in both your crowdfunding campaign and product release. If you don’t, any discounts and shipping promotions you offer could cut into your profit and put you in the red.
You’re in big trouble if your product delivery flops: If you fail to deliver the product people have paid for (i.e., you decide not to go ahead with the launch, or there are manufacturing issues) it can cause a terrible customer experience and demands for refunds, or even legal disputes. 😲
Risk level: Medium 🌶️ 🌶️🌶️
SBA loans
The Good
Choice, choice, and more choice: The SBA and its partners offer a wide variety of funding options from lines of credit to traditional loans.
Access racks of cash: You can gain access to substantial amounts of cash and can even spread the payments over a long time for some loans. This aids business growth and liquidity.
More time to repay: Many SBA loans come with long payment terms. For example, loans for purchasing real estate can have a loan period of 25 years.
The Bad (and The Ugly) of SBA Loans
RIP to your collateral if your business nosedives: Although the SBA backs most of the loan, if your business isn’t able to make the payments, you have to cover the unbacked portion. This figure can reach 30% of the loan, and applicants are often responsible for hefty balloon payments. When you consider loan amounts can be in the millions, you may find yourself having to pay back six figures or more from your pocket. 💸
You could waste your time: SBA loans come with the strictest requirements you’ll face as an e-commerce seller. This fact makes them almost impossible to obtain as a newbie. You can spend weeks or even months going back and forth with the SBA on your loan application, and they can still reject it! That’s time and effort you could have spent growing your business.
High-interest rates will bleed you dry: The interest rates on most SBA loans are nothing to write home about and are often more expensive than other funding options. This pulls cash out of your account to pad up the financial institution’s pockets, meaning you have less liquidity in your business, which is a danger to your brand.
Risk level: High to very high 🌶️ 🌶️🌶️ 🌶️
Quick Tips to Dodge the Burn of E-commerce Funding Lags While on the Hunt for Cash
Now you know it’s possible to get funding that’s actually on your side, it’s time to get ready for the journey.
Depending on the funding vehicle you choose and your circumstances, it could take some time to see zeros in your account from e-commerce lenders.
Here are a few top tips to help make the waiting period smoother:
Preserve your coins 💰
To prevent your brand from feeling the pinch while searching for funding, it’s critical you find and plug all the holes your cash is disappearing from.
This includes things like:
Sneaky transaction and exchange fees and exchange rates
Poorly timed shipments
Unoptimized sales funnels
High production costs
Taking time to fix these leaks will save you even morecash once your funding lands. Since you pay interest to the amount you borrow, each pound has an additional cost.
Look before you jump 👀
It’s easy to get carried away by the prospect of securing funding. Aim to reduce risk by making sure you can stomach the processing time, costs, and rules before applying for funding. Take this prudent approach each time you want to take on funding to avoid sticky situations.
Play the waiting game 🕑
If you can find other ways to secure funding while you search for capital, then go for it. This strategy is more economical for your business because it’s a debt-free cash source. When you do secure funding, you can then funnel cash towards repayments, reducing the strain repayments can cause. Get creative and think of some promotions that won’t cost too much to set up.
The Roadmap for Funding Your Big, Bold E-commerce Goals Despite Brexit
E-commerce and Brexit are two worlds at odds.
E-commerce businesses want to capitalize on the growing market and are willing to take on funding to achieve their goals. Yet, they’re held back by Brexit-fuelled fear in the markets and the banks’ resultant funding slowdown.
Walk away from traditional lenders that refuse to see your business’ bright future, and instead, opt for newer forms of funding designed especially for e-commerce businesses. If you step out of your comfort zone to find new ways to up your revenue, you can secure better interest rates and capital amounts, and ensure you won’t be reliant on funding indefinitely.
Finally, don’t give up—keep trying until you find the funding you need. Trust us, it will be worth it.
