What You Should Know About eCommerce Financing

Business is booming. Ecommerce sales in the U.S. are growing (estimated at $1,034 billion in 2022, up 7.7 percent from 2021), but ecommerce businesses across the country are still facing issues drumming up the capital they need to do business effectively. With the right ecommerce financing, that additional monetary leg up can go a long way.

In this blog, we’ll explore the core essentials of ecommerce financing, what you can use it for, what your financing options are, and the ways you can get it.

Just What Is Ecommerce Financing, Anyway?

Simply put, ecommerce financing is the monetary tool you need to build an online business. 

Ecommerce has grown as a business model due to its low overhead costs, vast market reach, and potential for rapid growth, and your financing certainly has to keep up. With the power of ecommerce lending behind you, you’re in a great position to pursue new growth opportunities while building your workflow efficiency.

Ecommerce business loans and financing can help you build more effective marketing campaigns, reducing the risk of cart abandonment. Or maybe you want to tap into more information about your target augments, or even expand your team.

What Can I Use Ecommerce Financing For?

On a more granular level, accessible funding for your ecommerce business empowers you to:

1. Expand your business: Expand your product offerings, enter new markets, or acquire other companies to strengthen your market position. You’ll improve your share of the market as well as your overall revenue—building your company’s long-term success brick by virtual brick.
2. Invest in technology: Ecommerce financing gives you the financial breathing room to invest in technology, such as hardware upgrades, artificial intelligence, and machine learning. With tools like Microsoft Dynamics 365, for example, you can improve customer experience, streamline operations, and drive innovation—all from a single central innovative hub.
3. Expand your marketing ventures: You’ll also be able to invest in comprehensive marketing campaigns, enhancing brand visibility and attracting new customers. With every step, you improve customer retention and loyalty, leading to higher lifetime customer value.
4. Hire new talent and invest in your workforce: With such financial backing, you’ll be able to attract and retain top talent, and keep your competitive advantage. The key?  Offering competitive compensation packages. You’ll have the skilled workforce you need to excel in an incredibly competitive landscape, while being able to further differentiate your business with your team’s wealth of knowledge and experience.
5. Expand inventory management and fulfillment: Additionally, you’re more easily able to invest in efficient inventory management systems and fulfillment solutions, reducing lead times and promoting customer satisfaction.

How Can I Finance My Ecommerce Business?

Revenue-Based Financing

Revenue-based financing (RBF) is an innovative funding option that provides your business capital in exchange for a percentage of your future revenue.  RBF is a favorite among entrepreneurs because it focuses on the company’s revenue performance. If you have strong revenue growth and a proven business model, this might be the choice for you.

With RBF, you access capital without running the risk of diluting ownership or giving up control of your business. It also offers greater remittance flexibility, since remittances adjust with the company’s revenue, reducing the burden during slow sales periods.

Business Lines of Credit and Business Loans

Traditional bank loans and lines of credit can be viable options for you, if you have a solid financial history and collateral. (Both become even more accessible when you work with an alternative lender with double the approval rates of traditional lenders like banks.)

Lines of credit give you the opportunity to manage short-term cash flow, such as inventory purchases or payroll. It’s also much easier to embrace unexpected opportunities or address unforeseen challenges.

Paying back a loan or  line of credit can help improve your business’s credit score, which in turn opens doors to more attractive financing options in the future.

With a business loan with a set loan amount, you’re also able to sustain healthy cash flow, guaranteeing that you meet your financial obligations as they arise.

Source: Pexels

Inventory Financing

Inventory financing sounds exactly like what it describes: you use your inventory as collateral for a loan. You get the funds you need to expand your product offerings, buy additional stock, and pivot into new seasonal trends. You’re also better able to manage fluctuations in your sales cycles, guaranteeing you always have the stock you need on hand.

You can take advantage of bulk discounts or early payment incentives from suppliers, improving your profit margins over time.

Invoice Financing

Invoice financing can be a great way to manage your cash flow and support the growth of your business. You’re able to free up funds tied up in outstanding customer invoices by selling them to a lender, which gives you immediate access to working capital. With this financing in hand, you’re able to handle payroll, operational expenses, and inventory management.

Struggling with slow-paying customers or longer payment terms? You have a continuous stream of cash flow ready to use. You’re also able to better manage relationships with your suppliers through prompt payment, which can, through negotiation and planning, lead to better pricing or more favorable credit terms.

Funding for Ecommerce Business: What’s the Best Option?

When looking at ecommerce business loans and weighing factors like interest rates, the best option boils down to what you need your business funding to do. 

In short:

• Revenue-based financing empowers you to access capital based on your revenue performance (and for a percentage of said future revenue).
• Business loans, offered as long- or short-term loans, provide you with a lump sum that you can use for essentials like inventory management and investing in technology.
• Lines of credit provides flexible access to funds, allowing you to draw what you need, up to the credit limit.
• Inventory financing helps you scale up your inventory by using the inventory as collateral for a loan.
• Invoice financing lets you sell outstanding invoices and free up the cash you need, helping you maintain stability.