Small business loans are meant to help entrepreneurs, but when it comes to e-commerce, traditional lenders aren’t likely to meet your needs.
Stringent requirements disqualify more than half of total SBA applicants, with large banks approving only 25% of the SBA loan applications they receive. Only 31% of small business owners get the full amount of funding they need, with the vast majority of SBA loan approvals going to non-minority applicants.
One of the main reasons business owners from historically underrepresented backgrounds struggle to get funding is unequal access to collateral — yet many lenders still won’t lend without it.
To qualify for a loan, you’re expected to already have assets that match or exceed the value you’re asking to borrow. It’s a system that makes little sense and one that disproportionately disadvantages people who are building their businesses from the ground up.
Let’s take a closer look at the loan requirements that can make it hard to get e-commerce financing and explore new solutions based on your real business potential — not your personal assets.
Personal collateral requirements are one of the biggest barriers to entry for small businesses applying for SBA and other traditional loans, and entrepreneurs from historically underrepresented communities often feel it the most.
Black founders are more likely to be denied loans or offered worse loan terms than their white counterparts, even when they have stronger applications. They may also have less access to generational wealth and are more likely to work a second job while they build their businesses.
No one should have to put personal assets at risk to grow a business.
With unequal loan requirements, everyone loses. If you’re considering a traditional loan, think carefully before you apply. Here’s what you could be signing over in exchange for those funds.
Many SBA and bank loans are structured as secured loans.
This means they require you to put up specific assets as collateral, like real estate, inventory, or business equipment. These assets can belong to the business, or they can be your personal property. If you default on the loan, the lender can seize these assets. All SBA loans over $25,000 require some type of collateral.
In some cases, a lender may not ask for collateral. This is called an unsecured loan. Unsecured loans aren’t tied to any particular assets. If you don’t pay back the debt, it’s sent to collections and can leave a dent in your credit score.
Even with unsecured loans, the lender may still require a personal guarantee — a contract that holds you, as an individual, responsible for your business’s debts. This means that if your business fails to pay off the loan, the lender can still go after your personal assets — or even your family’s assets — and you or your loved ones could end up in court.
Lenders require collateral because lending is risky. If a business doesn’t perform as expected, they need another way to recoup their investment.
Traditional brick-and-mortar business owners tend to hold property, equipment, vehicles, and other items of value that a lender can seize and liquidate when a business defaults on a loan. But with the lean infrastructure of e-commerce, lenders need another way to collect. A personal guarantee often takes the place of traditional business assets.
Most SBA loans require something called an unconditional guarantee, which states that the business owner(s) will pay back the loan in full, no matter what, regardless of the circumstances. Every individual who owns 20% or more of a small business is required to sign. Some even require spouses with only 5% business ownership to sign as well.
SBA loans often require both collateral and a personal guarantee — but a lean, high-growth e-commerce business may not have, or need, much in the way of physical assets and infrastructure.
Your business shouldn’t have to live up to outdated, unrealistic standards. Unfortunately, many lenders still have a long way to go toward understanding what a financially healthy e-commerce business really looks like.
Innovative small businesses often turn to the following funding sources to help scale their growth, without putting their personal finances at risk:
These funding options could be viable for your business at certain stages of growth. For example, if you have products that naturally generate buzz and excitement, they can be effective sources of fast funding.
The downside is, that they require high amounts of time and energy — the same resources you could be using to develop your next product or build relationships with your customers.
The best e-commerce funding options are the ones that give your business the flexible backing it deserves while empowering you to maintain your existing momentum.
Here are just a few of the funding solutions designed specifically for your needs:
Because these funding options were designed for an e-commerce business model, they are based on the things that matter — your sales, profits, and business performance. Not your personal finances.
Let’s take a closer look at what you’ll need in order to secure flexible, tailored e-commerce funding that doesn’t require personal collateral.
Here’s what may be required during the application process:
There’s so much to consider when choosing an e-commerce funder. You also need a partner that can meet your business needs and give you the freedom to spend your funds in whatever way will grow your business.
Here are some things to look for in an ideal funding partner:
Securing funding for your e-commerce business is a big decision. The most important thing is to choose a true partner — one who understands the unique needs of e-commerce and wants to see your business soar.
Traditional lenders have been slower to catch on when it comes to meeting the needs of e-commerce sellers. But research shows that fintech innovators are making a difference, leveling the playing field, and enabling more business owners to scale at speed.
If you’ve been struggling to get funding, you need a lending partner who’s working for you, not against you. One that evaluates your business on its true growth potential — not your personal history, your demographics, or its fear of risk.
At SellersFi, we offer equitable access to our complete suite of funding options.
Easily create your free SellersFi account to get started!
