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.
E-commerce Funding Without Personal Collateral
- Eligibility Terms Shouldn’t Hold You Back
- Alternative Funding Options That Don’t Require Collateral
- The Best Funding Options for Growing E-commerce Businesses
- What You’ll Need to Secure Funds Without Collateral
- What to Look for in a Lending Partner
Eligibility Terms Shouldn’t Hold You Back
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.
Secured vs. Unsecured Loans
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.
Why Would a Lender Require Personal Collateral?
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.
Alternative Funding Options That Don’t Require Collateral
Innovative small businesses often turn to the following funding sources to help scale their growth, without putting their personal finances at risk:
- Crowdfunding: You promote your idea to the public on an online platform like Kickstarter or GoFundMe, and individuals can decide whether to invest in it or not. You don’t typically have to pay your funders back, but they may receive returns on their investments like equity in the company or physical goods. You usually have to spend substantial time and effort publicizing your crowdfunding campaign through email and social media.
- Angel investing: You network with high-net-worth investors and pitch them your business idea. If you’re successful, you sell a stake in your business in return for capital, but you don’t have to pay funds back directly. Angel investors tend to want to be pretty hands-on and have a say in many of your business decisions, so be sure to choose your partners wisely.
- Peer-to-peer lending: You apply to borrow funds from interested individuals through an online platform, then make fixed monthly repayments to repay the funder(s). If you don’t pay, your debt gets sent to collections and could eventually land you in court.
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 Funding Options for Growing E-commerce Businesses
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:
- Working Capital: With high dollar amounts and flexible terms, Working Capital is one of the most attractive funding options for e-commerce. A funding provider extends you a term loan, line of credit (credit limit), or revenue advance to be used for any number of expenses and investments, such as inventory, freight, and launching new product lines. Some Working Capital providers place restrictions on what you can do with your funds, but others — like SellersFi — let you spend your funds however you want when it comes to your business, whether that’s increasing your inventory and ad budget, or making larger investments like overhauling your digital strategy or expanding internationally.
- Invoice Factoring: If your business has a wholesale arm, you can sell your accounts receivables to a factoring company at a reduced rate. The factoring company will charge you an additional fee and then give you the cash. With SellersFi Invoice Factoring, you get access to your funds in as little as 48 hours, freeing you up to run your business the way you want, without any cashflow gaps.
- Invoice Financing: SellersFi Invoice Flex helps you stock up on products by paying your suppliers’ invoices in full. You return the funds on a predetermined schedule that works comfortably with your cash flow needs. It’s an excellent solution for balancing strong inventory with steady cash flow.
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.
What You’ll Need to Secure E-commerce Funding Without Collateral
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:
- Solid sales volume: Aim for online net sales of at least $20,000 per month before you apply. This ensures you’ll be able to repay and continue operating your business comfortably.
- A proven track record: At a minimum, you’ll need to show 6 months of sales history. A sales history with good revenue figures proves your business has staying power.
- A head-turning product: If you already have proof of concept and traction in your business, you can use it to secure funding for your next move. Strong pre-sale figures can demonstrate demand for your products and show that people are eagerly awaiting your launch.
- Your essential documents: While e-commerce funders won’t make the same unmeetable documentation demands as other lenders, they still need to see some paperwork. At SellersFi, we request a range of documents that fall into three categories. These may be subject to change, but typically include things like:
- Proof of incorporation in the US, UK, Canada, or Australia
- Certificate of incorporation, Articles of Organization, or Articles of Association
- Reports on sales figures for the last 6-12 months
- 3 months of statements from the account where you receive your payouts
- Current business bank account details
- Cashflow, profit and loss, and balance sheet statements
- Owner’s personal information
- Proof of Identity
- Proof of Address, like recent bank or utility statements or a Driver’s License
What to Look for in a Lending Partner
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:
- Fast and inclusive online application process: A good application process should be simple and straightforward. Online loan applications can also reduce — though not eliminate — the risk of discrimination by reducing in-person instances of racial, gender, or other bias.
- Realistic requirements: Your ideal partner knows there’s more to being a good candidate for funding than having a perfect credit score or piles of cash for collateral. Look for funders who know how to assess your company’s true potential, by looking at past sales, current revenue, and liquidity.
- Flexible funding: Whether it’s helping you address cash shortfall caused by delayed payouts or providing the capital needed to innovate and scale, you need a funding partner that offers a variety of products, each tailored to meet different e-commerce needs and growth scenarios.
- Quick turnaround: Speed is everything in e-commerce. Look for funding providers who offer quick decisions on loan applications. With SellersFi, you’ll have a decision in as little as 48 hours.
- Strong customer support: An ideal partner will work with you to support your business even when times get tough. Look for a funder with the flexibility to adjust terms and offer help when you need it.
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.
Undoing Collateral Damage
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!