Finding the Right Loan for Your E-Commerce Business

How to find the right loan and financing options for an e-commerce business

Merchant advances and loans are helpful tools for any e-commerce business. Whether those funds go toward essential expenses like payroll, inventory, marketing, or shipping, businesses often struggle with cash and need money to address expenses faster than sales receipts become available.

Lacking sufficient cash isn’t the sign of a failing e-commerce business — far from it. All online businesses have dynamic sales cycles and face significant hurdles regarding inventory and audience reach, requiring access to cash.

Savvy business operators turn to credit cards, business loans, or other lending options to overcome these challenges. Companies like Shopify, Amazon, and Walmart have funding programs for owners selling in their marketplaces. Each is different, and the more knowledgeable you are about them, the higher the probability of finding the right program to fit your business needs.

Each of these allows a business to leverage its assets, in some cases, including future expected sales, to borrow cash to address today’s expenses. Here’s a general overview of the three mentioned above, as well as some alternative lending options to consider.

Shopify Capital

Shopify Capital provides funding that helps stores capitalize on their current market position and accelerate their growth.

In concept, both sides of the funding program benefit: A store owner gets additional money to keep their doors open or grow their business, leading to more profits over time. Simultaneously, Shopify receives the funds back through a repayment schedule and has the benefits of a longer-lasting store that provides revenue through fees, payment processing, and activities.

Not all stores qualify for Shopify Capital. Shopify sends a pre-qualification message to your Shopify admin dashboard, inviting you to see different funding options available (including the specific amount of cash you’re pre-qualified for) if you’re eligible. Once you receive that message, you can complete the application to be approved for funds.

Even though this process is automatic, that doesn’t mean there aren’t criteria. If you’re curious about why you haven’t received an offer or wondering why you received the offer amount you did, it’s important to understand Shopify Capital’s eligibility requirements to receive funding thoroughly:

  • You must be located in Canada, the United Kingdom, or the United States.
  • You must meet minimum sales volume requirements.
  • Your store must be what Shopify considers a low risk.

These requirements frustrate many store owners because they’re imprecise. Without clear thresholds or minimum sales volumes to guide them, many store owners opt for third-party funding sources or lose motivation. Even stores that do pre-qualify for Shopify Capital may receive a lower offer following the underwriting process, or the funding offer may be retracted entirely.

Amazon Lending

In 2022, Amazon lent $2.1 billion to independent sellers. Amazon Lending has aided many aspiring and established merchants in building their businesses. Overall, Amazon Lending can be a very effective resource for those selling exclusively in Amazon’s ecosystem.

To make the most of it, merchants must keep a tight routine generally based on Amazon’s two-week sales deposit cycles. It’s far from a deal-breaker, but some merchants prefer more frequent sales deposits and more flexibility in repayment terms.

Amazon offers annual financing terms that require precise forecasts for your next four quarters of working capital needs. This demand for precision entails sophistication in determining when and how much of those funds to spend. If you spend everything in Q1, will you have enough sales receipts in time to purchase Q2 inventory or take advantage of changes in consumer demand as they occur?

Amazon Lending is also invite-only; the approval process can become complex (although less than with a bank) and often opaque. In some ways, the funds are restricted and must be used to drive your Amazon sales volumes. It’s no issue for those needing to spend a significant amount through Amazon anyway. Amazon also focuses on your Amazon sales and FBA volumes, so they may not be able to provide capital to support your non-Amazon sales channels.

Sellers may request funds as needed (subject to credit approval), enabling them to build inventory, fund operations, and quickly take advantage of business opportunities. If a business receives an invitation for Amazon Lending, it still needs to apply to learn the fees. It’s because Amazon offers several lending options, each with a unique fee structure and rate that can vary widely.

Walmart Marketplace Capital

Walmart Marketplace Capital is a program that gives qualifying Walmart Marketplace sellers a cash advance offer based on their Walmart Marketplace sales.

There are three key use cases for Walmart Marketplace Capital funds: more marketing, enrolling in Walmart’s fulfillment plans, and expanding inventory or product catalog. Eligibility is based on:

  • History of Marketplace sales (must be a Marketplace seller for at least six months)
  • Sales volume on Walmart Marketplace
  • Business risk profile
  • Adhering to Walmart Marketplace Seller Performance Standards
  • Must be a U.S.-based business
  • Sole proprietors are not eligible to receive offers

If Walmart Marketplace Capital makes an offer, an e-commerce business can accept the agreement directly in the Seller Center. Once accepted, funds are remitted via your payment processor (Payoneer or Hyperwallet) by same-day or next-day ACH.

The baseline payment amount is estimated using historical sales and displayed when the offer is issued. Walmart collects this amount automatically from payouts during each settlement cycle. In the event of insufficient funds in the settlement account, Walmart may debit the seller’s bank account.

Eligible businesses are charged a competitive flat fee as a percentage of the advanced amount, which remains the same during the payment period. The fee is included in the total payment amount and is paid as a part of regular installments.

While upfront simplicity and speed are positive elements of Walmart Marketplace Capital, the program does have some drawbacks, including:

  • Relatively inflexible repayment terms: Repayments are automatically deducted from your marketplace sales, which could cause cash-flow issues during slow sales periods.
  • Only available to Walmart Marketplace sellers: You’re ineligible if you sell on other platforms or are based outside the United States.

Conventional Business Loans

Loans from a bank, credit union, or commercial lender can be a great source of funds for established businesses. Unfortunately, e-commerce businesses often don’t meet the criteria that banks formed around conventional brick-and-mortar businesses.

Even thriving online shops don’t have the traditional capital and assets lenders look for to evaluate risk, making conventional loans less valuable for e-commerce business owners. Business loans can also take weeks to process and get approved. They may even have fees and interest rates that are too high, with the average term loan rate fluctuating between 10% and 45%.

Business Credit Cards

A flexible option, especially for short-term cash infusions, e-commerce business owners can use cards for virtually any expense. However, the APR on many business credit cards can range from 18% to a hefty 29%, which can be risky for businesses.

Bad credit can also jeopardize a business’s ability to get loans and funding down the line. Average small business credit cards are currently near a 25% APR.

Cash-Injection Aligned Lending Programs

Lending programs that correlate cash injections with the exact amount needed to cover immediate costs are also an option for e-commerce businesses. Programs like these often include third-party fintech tools that integrate directly into your sales platforms, detecting real-time cash flow needs and adjusting accordingly.

Systems automatically send funds to your bank, ensuring you receive cash injections in lockstep with your actual sales receipts. These programs support scalability and eliminate the reliance on lump-sum advances based on rough estimates of medium-term revenue needs. Loans are often secured within minutes to an hour and are on a repayment schedule based on store sales volume, not a fixed repayment method.

Not every detail of each lending option above is included in this article. Still, this information can be used to start the process of securing funding or finding a better option. It’s critical to fund your business with the right fit, so roll up your sleeves and do some research.

Look for affordable terms, quick approval, and streamlined platform management. The more you know about a funding source’s requirements, mechanics, and repayment terms, the better you can choose the right tools for growing and maintaining your e-commerce business.

Eric S. Youngstrom

Eric S. Youngstrom is Founder and CEO of Austin-based Onramp Funds, an innovative funding provider that supports the growth of e-commerce businesses. Eric leads a team steeped in e-commerce, providing financing and other resources to empower online merchants to scale their businesses and achieve their dreams.

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