Finance for ecommerce businesses

What is ecommerce financing?

If you operate an online company that sells products or services on the web, you own an ecommerce business. And, if you plan to grow that business, at some point you will need to look at funding options for working capital, new equipment, machinery, or if you plan on opening a new premises. That’s where ecommerce finance comes into play. So what are your options?

Types of ecommerce lending products?

In a utopian business world, business owners would always have enough cash for purchases, however, in reality, most expenses for web-based businesses are done through business finance facilities such as merchant cash advances, invoice financing, business loans, and asset finance.

Merchant cash advances

One of the latest funding options available to ecommerce businesses including online retail businesses are merchant cash advances. This is a handy source of cash that is based on monthly average card transactions done via your card payment terminal. The cash advance plus a fixed fee is payable as an agreed percentage of daily credit/debit card sales for the duration of the loan period.

Invoice financing

Another type of financing used by web businesses is invoice financing, where the business owner offers up unpaid customer invoices as security, which gives the business access to cash based on a percentage of the total invoice value — can be as quick as 24 hours to complete. Like with all other types of business loans, the amount of money on the cards is dependent on the lender's risk assessment. 

Business loans

One of the most popular types of lending is the classic business loan, which comes as either a secured business loan or an unsecured business loan, and it’s important to know the differences between the two, the main one being the use of collateral in the form of assets, which can allow the borrower to loan higher sums of money with better terms and interest rates.

Asset finance

Asset finance is a new finance option for UK businesses. It can make life easier for online businesses to buy, use, and benefit from valuable assets without having to make a large upfront cash payment, instead you can pay a fixed monthly amount to better manage cash flow. Many ecommerce businesses will be familiar with equipment leasing and hire purchase, as these are the most popular types of asset finance for online companies. The big advantage of asset finance is that the responsibility for maintenance lies with the lender, and at the end of the contract, you can return the machine/equipment to the lessor or alternatively you can take full ownership of the asset.

How do I apply?

If your business has a website and you receive payments for products or services you are eligible to apply for ecommerce financing. Direct-to-consumer businesses, online retailers, Software as a Service, and online marketplaces are all eligible for ecommerce finance. However, if you are not one of the above, you may still be able to secure a merchant cash advance or a regular business loan. The business will need to be registered in England or Wales to satisfy most lenders’ eligibility criteria for ecommerce finance.

• Own a limited company or sole tradership

• Have a trading history of 12 months+ (depending on the lender this can vary)

• On average you transact more than £10,000 a month through your business bank account (again this may vary from lender to lender.)

One additional perk of using a lending platform to find the best deal is the ability to quickly compare offers from different lenders, without having to spend days doing this manually. You can focus on running your ecommerce business while a lending platform does this automatically using an algorithm, bypassing the need for a middleman like a credit broker.

What can I use the money for?

The great thing about ecommerce loans is that they are multipurpose. Business owners can use the capital for marketing, stock, repairs, purchases, legal fees, working capital or any other expense that is related to trading. It will depend on the lender, but most don’t dictate how the money should be spent, however, bear in mind that guarantees and indemnities may be required. With the help of a lending platform like Funding Options, you can quickly scan the market to find the most suitable ecommerce financing option for your business. They can introduce applicants, figure out ways to improve your credit score, or negotiate on your behalf in respect of stipulations like personal guarantees and collateral. 

You could use an e-commerce business loan in the following ways:

• Buy new stock

• Marketing and advertising 

• To manage cash flow

• Investing in new technology

• Storage facilities including migration to cloud computing

Benefits of an e-commerce business loan

You might be torn between using some cash you have saved up to get what you need to run your business, yet with so much uncertainty in the market, business owners are turning to alternative funding options, rather than dipping into cash reserves. There are many advantages to securing an ecommerce loan, and they include the following:

• Repayments are fixed and affordable

• You use your cash to expand your business

• Entire process can now be done online

• Won’t need to sell part of your business to raise money

• Trusted advisors will talk you through the process from start to finish