E-commerce is big business.
In fact, UK online sales hit £141 billion in 2020, accounting for more than 30% of total retail sales — a first for the British economy. This upward trend is set to continue worldwide, with global e-commerce purchases tipped to make up 95% of all sales by 2040. 🔥
But capturing this growth can be tricky. You need cash flow to keep the inventory and sales flowing, but strict supplier agreements and slow marketplace payouts can make it feel impossible to keep up.
Luckily, the right line of credit can be a great way to inject cash back into your business so you can keep scaling to new heights — but there’s a catch.
Some providers make it difficult to secure a credit line or worse, don’t give you enough funding because they just don’t ‘get’ ecommerce.
It’s a frustrating catch-22. But we’re here to help. In this guide, we’ll share the ins and outs of credit lines for e-commerce businesses, and give you the blueprint for navigating a small credit line so you can keep growing, no matter what.
Need additional funding to keep your business moving forwards? Find out how SellersFi can help.
A line of credit is a flexible funding option you can secure from banks, credit lenders, and, more recently, dedicated e-commerce funding providers.
Here’s how it usually works:
Are cash flow problems holding you back? Discover how SellersFi can help you get ahead.
No matter which way you cut it, e-commerce is capital-intensive. Pressure to stay on top of your current operating expenses, while making sure you have enough inventory to meet future demand is difficult on the best of days.
A fair and flexible credit line can give your store the financial breathing room to take on new projects while maintaining your existing momentum.
For example, say you sell baby clothing in the UK. Once you have a credit line, you could also branch out into baby bottles while also opening a store in the US, without cutting back on the expenses you need to keep running your already successful UK store.
While each funding provider will have specific criteria you need to meet for a business line of credit, there are some standard requirements you can plan for.
The idea is to prove to the potential funding partner that your business is healthy, with a low-risk profile.
Here are a few common conditions you’ll need to meet:
When it comes to business, you need to show you’re the good guy — and that means proving great credit ratings, great character, and sufficient revenue. For example, at SellersFi we don’t go into full detective mode on your personal life — but we do check whether your sales are on a steady upward trajectory.
Here are some of the criteria we look at when deciding if (and how much of) a credit line can be issued:
Love it or hate it, getting your business documentation in order is one step you can’t afford to miss if you want to secure the right amount with your credit line.
Aside from having administrative paperwork on things like company registration, directorships, and tax returns, it’s also important to collect:
Unlike traditional banks, many modern e-commerce funding providers won’t expect you to cough up a lump sum for collateral — but that doesn’t always mean it’s easy to get the line of credit you need.
Today, it’s becoming increasingly common for funding providers to request directors to sign a personal guarantee.
At SellersFi, we won’t stress you out by requesting collateral on a working capital line of credit. Instead, we only ask for a personal guarantee from the owner or shareholders of the company.
It’s an approach that weeds out applications still on the fence about funding, speeding up the processing time for candidates who are 100% ready and waiting.
In the new and fast-changing world of e-commerce, it’s not always easy to secure a robust line of credit so when you beat the odds, it’s a win worth celebrating. 🎉
But if you score a low credit limit? You can quickly be pulled down from that high.
Luckily, there’s a way around small credit lines. Let’s take a look at the steps you need to overcome the funding gap.
Before you consider upping your credit line, take a step back and assess whether you can do without additional funding. If you can, it will help you avoid taking out more funding than you need.
Work this out by listing the essential tasks you need funding for and adding up the costs.
Next, see if you can drum up the missing cash with sales rather than heading straight for more funding. Creativity can pay huge dividends and could be just what you need to fill any cash shortfall, so don’t be afraid to color outside the lines. (Just look at Airbnb’s founders who sold cereal during the Obama and McCain presidential campaigns to raise capital. Yes, it really happened.)
Here’s how to drum up more capital without upping your credit line:
If your must-have costs exceed your line of credit and you can’t cover the shortfall with existing cash flow or new projects, then move on to increasing your credit line.
When you get a low credit line, it can be tempting to cancel out of frustration. But resist the urge — reactive moves can harm your credit and affect your chances of getting a higher limit elsewhere.
Instead, follow these steps:
Your funding provider wants to know they made the right choice by investing in your business, so how much capital they’ll offer is often decided by your creditworthiness.
Here are some ways to increase your standing before you reapply:
The truth is, many traditional providers are yet to catch up to the changing game of e-commerce.
So, if your existing funding partner refuses to budge, don’t sweat it. Take it as a sign to look elsewhere. As an ambitious seller, you should always have a modern e-commerce funding provider on your side — someone who actually understands e-commerce.
Your new provider should be a trusted partner you can count on in the highs and lows, like needing more capital suddenly due to a trending item or during an aggressive new growth strategy.
Case in point, when men’s beard care brand Viking Revolution needed additional capital to back its fast-moving product launch while also covering Q4 demand, they turned to SellersFi’s flexible working capital. As a result, Viking Revolution launched up to 10 products each month, invested in a subscription box model, and scaled its team.
Here’s what Viking Revolution’s Co-founder and CEO, Victor Mendoza had to say about it:
“Having enough funding through SellersFi to launch 10 products before Christmas was instrumental for us because it allowed us to get enough inventory in, pay suppliers on a schedule, and then continue to buy the product as sales ramped up.”
Here are some key traits to look for from an e-commerce funding provider:
It’s not fun to get a small credit line when you’ve patiently gone through the application process and had your sights set on more cash.
But a credit line that doesn’t meet your expectations doesn’t have to be the end of your funding journey.
In fact, a smaller line of credit can be a blessing in disguise, saving your business money and nudging it into new income streams.
If you find yourself stuck with a small funding pot, don’t lose hope. Take steps now to improve your store’s revenue and credit profile. Not only will you scale affordably, but you’ll also do it with more funding options within reach.
Is your credit line too small? Discover how SellersFi can help.
