eComm ain’t easy it’s a cash intensive business. It takes money to make money and sometimes you don’t have that money. In that case borrowing money is your only option. Without a finance degree it's impossible to understand all the lending options.
We built this guide for eCommerce businesses in need of a loan.
There are two forms of lending. Traditional financing, and alternative financing. Traditional financing comes from banks or other regulated financial institutions. They offer standard loan products like term loans, lines of credit, and SBA loans. The follow traditional underwriting guidelines that focus on creditworthiness, collateral, and repayment history.Alternative financing comes from outside traditional banking system. Alternative lenders offer lending solutions like invoice financing, revenue financing, and PO financing. They lend based revenue, cashflow, invoices, PO's, or inventory needs.
The key difference between traditional and alternative financing is the speed and flexibility. Traditional financing is more time consuming, requires lots of paperwork, and background checks. Alternative financing is faster, easier application process, but comes with higher fee's.
An easy way to remember this is;
Traditional lender = Risk adverse, tougher rules, better rates, harder for biz to get.
Alternative lender = Higher risk tolerance, flexible rules, higher rates, easier for biz to get.
While alternative lenders make it more convenient to lend to you. This is more risk for them. In exchange for that risk, they will generally have a higher fee. The higher fee’s are often not important or meaningful compared to the ease of access, flexibility, and friendly application process.
There are 16+ types of financing available to businesses. Each option has it’s pro’s and con’s. There is no one size fits all type lending solution. You need to consider 12 criteria when evaluating which type of financing is best.
I need some working capital. You need money to keep things going every day, like paying workers, buying stuff to sell, and paying bills. You option include: Lines of Credit, Invoice Financing, Merchant Cash Advances, Equipment, or PO financing.
I got a large PO and don’t know what to do. You get a big order but don't have the money to buy the inventory. Your best options are Line of Credit, PO Financing, Merchant Cash Advances, SBA, and Term Loans.
I need to buy inventory ahead for X reason. Preparing for the holiday season or long lead times. If you don't have the cash a LoC, Term Loans, PO Financing, Merchant Cash Advances are your best bets.
I want to grow & expand. Big plans for growth like hiring people, opening stores, and buying ad’s. There are plenty of options available to you. Term Loan, SBA Loan, Line of Credit and Merchant Cash Advances, P2P, and Friends & Family.
I want to expand my warehouse. If you need more space to handle growth. The best options are: General loans, equipment financing, mortgages, asset based lending, bridge loans, SBA 504 loan, and other real estate based loans.
Open up a new store. If you’re crushing it and have a great opportunity, there are plenty of solutions to open up that new store. General loans, equipment finance, lines of credit, asset based lending erm loans, merchant cash advances, and SBA Loan.
I have a big project that needs to get done. Your site need’s a re-build, a re-skin, or you want to invest in some killer new technology. Line of credit, term loan, merchant cash advance, government grants.
I have a unexpected cashflow gap because. Something happened, it’s a one off event, doesn’t happen normally, and you have a plan to get through it. Bridge Loan, term loan, and lines of credit.
Launching a new product or service. You’ve got a new market, a new product for your existing customers, or some other strategy. Crowd Funding, Peer-2-Peer Lending, and Term Loans.
I want to level up my marketing spend. You’ve got something that’s working. You got a plan to get ahead, just need the cash to do it. Lines of Credit, Term Loan, and Merchant Cash Advance.
I have seasonal sales cash flow constraints. You’re like a lot of other business. You’re a great business but your products have long lead times, and people only buy them during certain seasons. Bridge Loans, Term Loans, and Lines of Credit.
I have a killer R&D project, but need my cash. You have a tech team, maybe you want to hire an agency for a brilliant idea that could take your business to the next level. SBA Loans, Government Grants, Lines of Credit, and Term Loan.
I got an emergency. You had something come up last minute, a major problem, someone didn’t pay on time, or you got hit with an unexpected bill. Line of Credit, Merchant Cash Advances, and Personal Loans.
Interest rates and fee's are not the most important thing. Total cost of borrowing is. 5 things needed to understand total cost of any loan.
Being well-prepared when approaching any lender is a must. New alternative forms of lending will need more than click, click, approved.
The basic information traditional lenders will want to see.
For banks, major financial institutions and secured loans, you’ll need;
The alternative lenders will all need this information at the least.
Every lender, at some point, will ask questions about what you are using the money for. At the least, you should have a concise way of explaining the use of capital via Email or on a phone call. If you want to be a rockstar, build a 1-2 page “use of capital” deck. Explain why, show how you will repay it, giving them confidence in that, and making them believe it.
If you’re looking for PO, Invoice, Asset, or Equipment based lending alternatives.
There are 16+ types of alternative lending available to eCommerce businesses. We break down what they are, the pro's and con's, when they are good fit for your business, and a few examples of each.
A term loan is a loan that is repaid over a set period of time, usually with a fixed interest rate. These loans are often used for long-term investments in the business, such as buying equipment or expanding facilities.
Pro’s
Con’s
Best for
Examples
Driven, Uncapped, Swoop Funding, MerchantGrowth, Yardline, Lendzi, become, BusinessLoans, Ondeck, KapitusFinance,
Draw down money as you need it up to a certain limit. Interest is charged on the amount of money used. The credit line can be repaid and reused as needed.
Pro’s
Con’s
Best for
Examples
Driven , Assembled Brands, MerchantGrowth, Ampla, Yardline, Lendzi, become, businessloans, Ondeck, KapitusFinance, Fundbox, BlueVine
Borrow money against your customer invoices. Helpful for businesses that need cash while waiting for payment from customers.
Pro’s
Con’s
Best for
Examples
Yardline, become, KapitusFinance, FundThrough
Borrow money for to buy new equipment or machinery for your business. Money gaurenteed against the equipment. The lender can repossess the equipment if the loan is not repaid.
Pro’s
Con’s
Best for
Examples
Swoop Funding, become, KapitusFinance,
Borrow money against by using your businesses inventory as collateral. The amount is based on value of your inventory on hand.
Pro’s
Con’s
Best for
Examples
Uncapped, Assembled Brands, Yardline, become
A variety of different programs. Each program is partially guaranteed by the government. Easier to get than traditional loans.
Pros:
Cons:
Best for:
Examples
Yardline, become, KapitusFinance @SBALenderLyons, @sbabmarks, @SBA_Ray and more
aka. Revenue based financing. Get a lump sum of cash in exchange for a percentage of future sales. Pay back a % of daily or weekly sales.
Pro’s
Con’s
Best for
Examples
OnRamp, 8Fig, WayFlyer, MerchantGrowth,, Liberis, Silvr, Yardline, Lendzi, become, businessloans, KapitusFinance,
Borrow money for large orders from customers. Once the customer pays the invoice, the factor pays the remaining balance to the business, minus a fee.
Pro’s
Con’s
Best for
Examples
Assembled Brands, KapitusFinance
This is a type of factoring where the factor assumes the risk of non-payment by the customer. If the customer does not pay the invoice, the factor absorbs the loss.
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Con's
Best for
These are small loans, $1K to $10K in value. Designed to solve quick problems.
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Con's
Best for
These are short-term loans that are used to bridge a gap between financing. For example, a business may use a bridge loan to cover expenses while waiting for a larger loan to be approved.
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Best for
Raise money by soliciting small contributions from a large number of people. Various online platforms. A good option for businesses with a compelling story or product.
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Best for
Examples
Peer-to-peer platforms that connect borrowers with lenders. This can be a good option for businesses that may not qualify for traditional bank loans.
Pro’s
Con’s
Best for
Examples
Lending Loop, goPeer.ca, KickFurther, Funding Circle, Prosper, and Honeycomb
Grants are non-repayable funds that are provided to businesses for a specific purpose, such as research and development or job creation. Grants are typically provided by government agencies or non-profit organizations.
Pro’s
Con’s
Best for
Business owners may be able to obtain a personal loan to finance their business. This type of financing may be easier to obtain than a traditional bank loan, but it also comes with higher interest rates and may put the borrower's personal assets at risk.
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Cons:
Best for:
If you have friends or family members who are willing to lend you money, this can be a low-cost and flexible financing option. However, it's important to approach these loans with caution to avoid damaging personal relationships.
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Best for