Ecommerce Funding: 3 Things You Need to Know

Securing ecommerce funding can be challenging for many entrepreneurs. While ecommerce businesses have been booming, they often face barriers when seeking traditional financing. Banks and traditional lenders tend to view ecommerce ventures as risky, primarily due to the unique structure and operational models these businesses follow. Fortunately, various funding options cater specifically to the needs of online retailers. This article will cover why it’s hard to get funding for ecommerce businesses and which options are available, including business credit cards, revenue-based financing, inventory financing, invoice factoring, small business loans, revolving lines of credit, and SBA loans.

1. Why It's Difficult to Get Funding for Ecommerce Businesses 

Ecommerce businesses often face challenges in securing financing because they don't fit into the typical mold that traditional lenders, such as banks, expect. Ecommerce companies often lack a long operating history, and many owners don’t have a track record of financial success that banks can assess. This puts ecommerce entrepreneurs in a difficult spot, as they may not meet the traditional criteria for financing, such as years of business history or high credit scores.

Additionally, funding for ecommerce business owners from private investors or venture capitalists is also notoriously difficult to obtain. Investors usually demand a portion of the company in exchange for capital, requiring business owners to sacrifice a percentage of ownership. This isn’t ideal for all entrepreneurs, particularly those who want to retain full control over their business. Moreover, venture capital funding is highly competitive and typically reserved for businesses with rapid growth potential or unique, disruptive products.

While these hurdles are significant, the good news is that several alternative ecommerce funding options can help online business owners overcome these challenges and access the capital they need to grow.

2. What Funding Options are Available for Ecommerce Businesses 

Business Credit Cards

Business credit cards are a flexible funding option that is ideal for both new and established ecommerce businesses. Using a business credit card allows you to build credit while earning rewards or benefits for recurring business expenses, such as media spending, subscription services, and inventory purchases.

• Perfect for: Businesses that need to build credit and take advantage of rewards programs for recurring operational costs.
  
  
• Pros: Helps build business credit; offers rewards and cashback options for everyday expenses.
  
  
• Cons: High interest rates if not paid off in full; limited by credit limits.
  
  

Revenue-Based Financing or Merchant Cash Advance

Revenue-based financing or a merchant cash advance offers fast access to capital in exchange for a percentage of future sales. This is an excellent option for ecommerce businesses that have consistent revenues but need quick funding to support marketing, inventory, or operations without having a strong credit history.

• Perfect for: Established businesses with regular revenue that need funds for marketing, inventory, or other immediate needs.
  
  
• Pros: Quick approval process; repayment is based on revenue, making it more flexible.
  
  
• Cons: Can be more expensive than traditional loans in the long run, with fees and repayment amounts fluctuating based on revenue.
  
  

Inventory Financing

Inventory financing allows ecommerce businesses to borrow money specifically to purchase inventory. This type of funding is particularly useful for businesses that need to maintain or grow their inventory but don’t have the cash flow available to do so. Inventory financing uses the purchased inventory as collateral, so businesses don’t have to offer personal or other business assets.

• Perfect for: Businesses that rely on a steady flow of inventory and need capital to manage stock levels or expand their product offerings.
  
  
• Pros: No need for personal collateral; helps maintain inventory levels.
  
  
• Cons: Lenders may offer financing based on only a percentage of the inventory value, limiting the amount of capital available.
  
  

Invoice Factoring

Invoice factoring is a financing solution for businesses that deal with clients who take time to pay their invoices. By selling unpaid invoices to a factoring company, businesses receive upfront cash while waiting for customers to pay. This allows businesses to improve cash flow and meet short-term expenses without waiting 30 to 120 days for customer payments.

• Perfect for: Businesses with outstanding invoices that need immediate cash flow to cover operating expenses.
  
  
• Pros: Improves cash flow quickly; doesn’t require good credit.
  
  
• Cons: Fees for factoring can be high, and it reduces the total amount of receivables collected.
  
  

Small Business Loans

Small business loans are a popular financing option for ecommerce businesses that have a proven track record and a solid credit history. These loans can provide a lump sum of capital that can be used for a variety of business purposes, such as buying inventory, launching new products, or expanding your team.

• Perfect for: Well-established businesses with strong credit histories that are looking to grow.
  
  
• Pros: Access to larger sums of capital; can be used for many business needs.
  
  
• Cons: Requires a good credit history and established business financials for approval.
  
  

Revolving Lines of Credit

A revolving line of credit provides ecommerce businesses with flexible access to funds up to a pre-approved credit limit. This financing option allows businesses to draw funds as needed, repay them, and draw again, making it a great option for managing cash flow or covering seasonal expenses.

• Perfect for: Businesses with cyclical cash flow needs that want flexibility in accessing funds.
  
  
• Pros: Flexible access to capital; only pay interest on what is used.
  
  
• Cons: Requires a strong credit history to qualify; interest rates can fluctuate.
  
  

SBA Loans

SBA loans are long-term, low-interest loans backed by the U.S. Small Business Administration. These loans are ideal for ecommerce businesses that have been operating for several years and are looking for capital to expand, refinance debt, or invest in technology or growth initiatives.

• Perfect for:  Established businesses with a solid financial history looking to make significant investments in growth.
  
  
• Pros: Lower interest rates; long repayment terms.
  
  
• Cons: Lengthy application process with extensive paperwork.

3. Get Funding from Yardline

If you’re an ecommerce business owner searching for funding for ecommerce business growth, Yardline offers tailored solutions to meet your needs. Yardline provides the best rates and terms, allowing you to grow your business with confidence.

Apply for ecommerce funding today and get approved in as fast as 24 hours. Click here to get started and watch your business thrive!