10 Funding Options for Your Ecommerce Business

If you want to grow your eCommerce or Amazon business, you’ll need to have access to capital. Whether you need to buy inventory, manage cash flow, invest in profitable advertising campaigns, or cover payroll to keep your valuable employees, having capital enables you to grow your business quickly.

Before looking for funding, you’ll need to consider the following factors:

1. How soon do you need the money? Some lenders can approve funding within 24 hours, but they tend to be more expensive (i.e. higher interest rates or fees). Other lenders, such as those issuing SBA loans, can take months but they can offer you the best rates and terms. 

2. How much money do you need? The lenders will look at a number of factors when determining how much you qualify for, such as personal and business credit scores, tax returns, cash flow projections, profit & loss statements and more.

3. What do you plan to use the funds for? Many lenders will ask you this question when applying for funding. The most common reasons include marketing, inventory, equipment and payroll.

If you are clear on the answers to the above 3 questions, here are 10 popular funding options for your eCommerce business.

Term Loans

There are different types of term loans available, and qualifying for them depends on how long your eCommerce business has been in operation. If you’re a brand new business, your best option is getting a personal loan from either a traditional bank like Wells Fargo, or a Peer2Peer (P2P) Lending Platform such as Prosper or Lending Club.

To qualify for a personal loan from a bank, you’ll need at least a 650 FICO credit score and $45,000 in personal income. P2P lenders may approve you with a lower score, but you’ll pay higher rates to offset the risk. 

You may qualify for business term loans if you have been in operation for at least one year and making at least $100,000 annually. Interest rates depend on a number of factors including personal credit score, time in business and annual revenue.

Loan terms can fall in one of these categories:

1. Short term – loans are typically up to 18 months. These loans are suited for business owners with bad credit but have good cash flow in their business. Payments are made either daily or weekly.

2. Medium term – loans are anywhere between 3 and 5 years and are paid back through monthly installments.

3. Long term – these loans can run anywhere between 5 and 25 years. Loans secured with the business’ assets get longer terms and better interest rates. 

Business Credit Cards

With good personal credit, you can qualify for business credit cards. Many lenders will approve you with a 680 FICO credit score or higher, and these business credit cards often come with an introductory interest rate of 0% for up to 18 months. The better your credit profile, the better chances you have of getting approved for a 0% interest for a long period.

Many business credit cards often come with rewards perks like cash back and travel. Some credit card issuers even offer bonuses for particular spending categories. For example, the American Express Gold Rewards card offers 4x points for advertising and shipping expenses. These are probably 2 of the biggest spend categories for many eCommerce store owners, so you can rack up rewards points very quickly.

SBA Loans

If you have at least a 640 FICO credit score and two years of profitable tax returns, you may qualify for a Small Business Administration (SBA) loan. The SBA does not lend directly to businesses, but they guarantee the loan, so many lenders consider this less risky when they underwrite a loan backed by the SBA.

While SBA loans can have the best interest rates and terms compared to other options, this funding type can be the most difficult to get approval for, and it also requires a lengthy application process with a lot of documentation.

For a list of the most active SBA lenders, please visit the SBA website.

Line of Credit

With a line of credit, you can draw up to the credit limit that the lender approves you. This gives you immediate access to cash because the funds can be deposited directly into your checking account. There are two types of lines of credit available: Secured and Unsecured.

To get approved for a secured line of credit, you will need to pledge an asset as collateral, such as real estate, stocks, bonds and even an automobile. Secured lines of credit typically come with a lower interest rate because lenders consider you less risky when you have collateral to offer as backup. This is a great option for startup businesses that have no revenue or business credit history.

An unsecured line of credit does not require collateral, but most lenders require at least two years in business with a minimum $100,000 in annual revenue. Since this is riskier to the lender, interest rates are higher compared to a secured line of credit. 

You can typically get a line of credit through a major bank, such as Chase, Wells Fargo and Bank of America, or an alternative lending platform such as BlueVine or Ondeck.

Inventory Financing

Inventory financing comes in handy when you need to purchase products that are not ready for immediate sale but want to have them available in case there is sudden demand, or want to stock up before the busy season.

This financing option is collateralized by the inventory the company will purchase, and it normally doesn’t require personal or business credit history and assets to qualify. You’ll want to consider this type of financing if you need to keep cash flow steady through seasonal fluctuations, update your product line or increase your supply of inventory as a response to high demand.

New businesses may be eligible as many lenders require at least 6 months in business. Financing may be available either as an inventory loan or line of credit. 

Supplier Credit

This is a great option to manage your cash flow. You can request payment terms with your current suppliers, meaning you can pay them 30, 60 or 90 days after the invoice is issued. This is often referred to as NET30, NET60, and NET90 terms. 

If your supplier offers these terms, they will typically check your business credit profile, as well as ask for references from other suppliers you have net payment terms with. Once approved, you can place your order with the supplier, and then pay them at a later date according to the payment terms. 

This comes in handy when you need to order inventory from your supplier, but would rather use your cash to invest in other activities like marketing or payroll. Once you generate sales, you can use the money to pay back your suppliers by the due date.

Working Capital

Short term loans of up to 12 months may be offered by the platform you are currently using, such as Paypal or Shopify. The amount you qualify for is based on your sales, and each platform has their own underwriting criteria when determining the loan amount.

Payments are deducted from your bank account either daily or weekly, or they can take a percentage of your sales until you fully repay back the loan. For the latter payment type, you are required to pay back a certain amount for each milestone. For example, a platform may require you to pay a minimum amount every 60 days until the loan is paid off. 

Some platforms don’t require a personal credit check. They base their decision on your company’s sales track record on the platform. Working capital is great when you want to invest in marketing, inventory or payroll.

Venture Capital

If you are looking for several hundred thousands to millions of dollars because your company is ready for hyper growth, venture capital may be better suited for your needs. Venture Capitalists look for the potential for a huge exit when determining whether to offer your company funding.

While you may have to give up a lot of control of your business, working with a VC can provide you with a high-level of mentorship and networking, which can prove to be a valuable resource in the long term. 

Business Grants

If you’re not in a rush for funding and not too concerned with cash flow at the moment, getting a business grant can be a great option. Many government agencies award grants for small businesses, including eCommerce. 

Some grants may have a specific criteria, such as being a minority or veteran owned business. To get started researching grants, please visit the SBA website. It will take a while finding the right grant, plus additional time completing the lengthy application process and receiving a decision.

Conclusion

Whether you decide to take on debt financing such as loans and business credit cards, or equity financing such as venture capital, having access to capital can rapidly grow your business to the next level. When making the decision to take on capital, it’s important that you know how much money you need, when you need it, and when you can expect to make a profitable return.

Get qualified for business funding today by visiting our funding platform ROK Financial here.