Whether you’re an established online seller on Amazon or Shopify, or you’re looking to start an online store for the first time, you may be thinking about how to increase your cash flow. Business funding is crucial to the success of any venture, so decisions about funding solutions for ecommerce sellers could make or break any expansion plans you may have.
Read on to learn more about e-commerce financing, financing solutions, and other business funding options for online sellers.
What Is Ecommerce Funding?
Ideally, funding for ecommerce businesses is specialized for the industry, geared for the uniqueness of online selling. Unlike traditional bank loans or credit cards, more flexible options include merchant cash advance and revenue-based financing, which integrate into online sellers’ stores. These solutions use technology to provide funds when companies need them, without disruption, monthly payments, or late fees.
How Does Funding for Ecommerce Businesses Work?
Lenders begin with a simple evaluation of the business’s needs before making an offer. Based on need, sales volume / monthly revenue, it’s unique to each company and tailored toward growth.
Getting the funds is an easy process. Lenders use read-only APIs, so the business owner only needs to sync their store and bank account so they can make repayment seamlessly. In keeping with the business-friendly environment, those repayment schedules aren’t monthly. Instead, the lender withdraws payment automatically every Amazon settlement period.
What Are the Benefits of Funding for Ecommerce Businesses?
These types of financing solutions can play a significant role in helping improve cash flow for online businesses and entrepreneurs. They’re modern and optimized for growth, from providers with a vested interest in the success of your business.
Related: Capital for Ecommerce: Getting It the Easy Way
Alternative Types of Funding for Ecommerce Businesses
Although e-commerce companies may do better with industry-specific financing options, they can also choose other, more traditional sources of funds. These options include credit cards, bank loans, crowdfunding, and friends and family.
Credit cards
Whether you choose to use personal credit cards or business cards for your ecommerce store, this type of ecommerce financing can quickly become expensive. With high-interest rates and late fees, credit cards can take a toll on small businesses when there is a lull in sales.
Sellers often face issues with available credit, forcing merchants to take out additional cards, which impacts their credit score. Because credit cards are built for 30-day payback cycles, sellers often struggle to use them as business funding, as ecommerce sellers operate in quarterly cycles.
Bank loans and lines of credit
Traditional bank loans are an established way to raise money for your business. They tend to have better interest rates than credit cards, making them more attractive financially. However, one issue with bank loans is that they require borrowing a large sum at once rather than accessing funds when needed. This can lead to cash crunches or paying interest before funds are necessary, affecting margins.
Additionally, banks may not fully understand ecommerce sellers and their business models, making them hesitant to offer favorable terms. The application process for traditional loans can also be long and cumbersome.
Crowdfunding
Crowdfunding can provide both funding and marketing exposure, but most campaigns do not succeed. It should not be relied on as a primary funding solution.
Friends and family
While borrowing from loved ones is an option, failing to repay the loan on time could strain relationships.
Related: Why Online Sellers Should Choose Ecommerce Business Loans
How to Use Funding for Ecommerce Businesses
If you need inspiration for how to use business financing to grow your store, here are a few ideas:
Pay Off Debt
One of the most popular uses of funding solutions is to repay more expensive debt, such as high-interest credit card balances. Eliminating this debt increases cash flow and helps sustain long-term growth.
Create a Cash Cushion
Cash flow issues can be detrimental to any business. Experts recommend maintaining two months of operating expenses as a buffer to protect against unexpected downturns.
Improve Your Design
Online shopping is visual, and having high-quality images and a polished website can enhance customer trust. Consider using business funding to invest in design improvements.
Invest in Technology
New computers, inventory management software, or automation tools can enhance efficiency. With e-commerce financing, you can afford the upgrades needed for smoother operations.
Manage Inventory Better
Stockouts can harm your sales and search rankings. Having additional cash allows you to maintain inventory levels, buy in bulk, and secure better supplier pricing.
Discover Funding for Ecommerce Businesses
When it comes to funding for ecommerce businesses, you want a company invested in your growth. Onramp was founded by industry veterans who genuinely want you to succeed.
With our unique model, you only repay when you make a sale. Say goodbye to minimum payments and monthly fees and say hello to increased cash flow and more opportunities. No interest, no commitments, and more than half the cost of traditional lenders. Fully aligned, as it should be. At Onramp, you are in control of the working capital you need. At Onramp, it starts with care.
Want to learn more? Contact us today to get started on your Onramp journey.
