The Ultimate eCommerce Lending Guide

Chris Bertulli

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.

Why Alternative Financing is useful for eCommerce Brands.

  • No business assets. Banks need assets as collateral. Without them, they won’t loan to you.
  • Personal guarantees. If your business doesn’t have assets, they’ll want your personal assets (House).
  • Banks want 3+ years of operating history. They don’t like cyclical businesses, or swings in revenue.
  • eCommerce and digital businesses are not something banks understand. What is considered good in our world, is not in theirs.
  • Credit Scores. This is a must for them.
  • Time. 3-6 months is the minimum from start to having funds if you approach a bank for a loan.

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.

Picking which type of financing is best for your eCommerce business.

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.

  1. Purpose. Why does your business need the loan? Is it for general purposes like a safety net or working capital. Or is it for a specific purpose like inventory, equipment, or a expansion.
  2. Lead time is a major consideration if you have urgent needs. Traditional banks take months.
  3. Interest Rates are important, but often are over rated in there importance.
  4. Loan Term is important because it drives the total fee’s and interest. You need to build a model to understand cashflow, payment ability, and more.
  5. Repayment Schedule is a most know. You can’t build a model, or understand the impact on your cash flow or Profit and Loss without it.
  6. Fee's can add up. Pay attention not to the whole number but also how they're calculated.
  7. Collateral and personal guarantees are a big consideration.
  8. Credit / Legal requirements only matter if you have a bad score, or history of legal problems.
  9. Loan Limits are important to ensure amount is enough without borrowing too much. Loans are like CC a bigger limit is not always a good thing.
  10. Flexibility is useful. You may need to extend the payment terms, need more money, or use the cash for many purposes.
  11. Reputation requires you do some research. They are going to check you out, you should do the same. Read the reviews and talk to a couple customers. Get someone to check their agreements.
  12. Industry Expertise is crucial. You want them to know your business, industry, trends, and cycles. This makes for a better product offering to you.


12 Common reasons eCommerce businesses need Loans.


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.

How to understand total cost of borrowing


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.

  1. Interest rate. The % amount charged on loan principal.
  2. Fee's. The % a lender charges for providing the loan.
  3. Term. The length of time you are being leant the money.
  4. Repayment Schedule. The frequency and conditions which you pay the lender back.
  5. Terms and Conditions. What are the rules and penalties that come with the loan.

Everything you’ll need to apply for a 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.

  • Financial Statements. Profit and Loss, Balance Sheet, and Cash Flow for the last 2 - 3 years. The more the better.
  • Bank Statements. 4 - 6 months of the main business accounts. Include many if you have them.
  • Business & Legal Documents. Licenses, articles of incorporation, and shareholder agreements.
  • Tax Returns. Worst case they’ll want to see the accountant filled tax returns. Best case they will want 2 years Notice of Assessments.

For banks, major financial institutions and secured loans, you’ll need;

  • Credit Scores. Personal and Business.
  • Collateral. If you are seeking a secured loan, this will be a must,

The alternative lenders will all need this information at the least.

  • Access to your Shopify or other ecommerce platform.
  • Access to your Quickbooks or accounting software.
  • Bank Statements. All primary accounts.
  • Basic Legal information. Articles of incorporation, and recent tax returns.

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.

  • PO / Contract. Signed. Make sure it has payment terms, conditions, and business information.
  • Invoices. Plus proof that these customers pay, and the work will get done on time.
  • Equipment Details + Business Plan.
  • Asset Information. Land, buildings, and equipment. You’ll need the mortgages, loans, and current market value (appraisal) on each.


16 Types of Lending for eCommerce businesses

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.


1. Term Loans

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

  • Get cash upfront to invest in your business.
  • Typically allow you to borrow a higher amount than other types of loans.
  • Funding is fast if you use an online lender rather than a traditional bank; typically a few days to a week versus up to several months.

Con’s

  • May require a personal guarantee or collateral — an asset such as real estate or business equipment that the lender can sell if you default.
  • Costs can vary; term loans from online lenders typically carry higher costs than those from traditional banks.

Best for

  • Businesses looking to expand.
  • Borrowers who have good credit and a strong business and who don’t want to wait long for funding.

Examples

Driven, Uncapped, Swoop Funding, MerchantGrowth, Yardline, Lendzi, become, BusinessLoans, Ondeck, KapitusFinance,

2. Lines of credit

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

  • Flexible way to borrow.
  • Typically unsecured so no collateral required.

Con’s

  • May carry additional costs such as maintenance fees and draw fees.
  • Strong revenue and credit required.

Best for

  • Short-term financing needs, managing cash flow or handling unexpected expenses.
  • Seasonal businesses.

Examples

Driven , Assembled Brands, MerchantGrowth, Ampla, Yardline, Lendzi, become, businessloans, Ondeck, KapitusFinance, Fundbox, BlueVine


3. Invoice (AR) Financing

Borrow money against your customer invoices. Helpful for businesses that need cash while waiting for payment from customers.

Pro’s

  • Fast cash for your business.
  • Easier approval than traditional funding options.

Con’s

  • Costly compared with other options.
  • You lose control over the collection of your invoices.

Best for

  • Businesses with unpaid invoices that need fast cash.
  • Businesses with reliable customers on long payment terms (30, 60 or 90 days).

Examples

Yardline, become, KapitusFinance, FundThrough


4. Equipment Loans

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

  • You own the equipment and build equity in it.
  • You can get competitive rates if you have strong credit and business finances.

Con’s

  • You may have to come up with a down payment.
  • Equipment can become outdated before the end of your financing.

Best for

  • Businesses that want to own equipment outright.

Examples

Swoop Funding, become, KapitusFinance,

5. Inventory Financing

Borrow money against by using your businesses inventory as collateral. The amount is based on value of your inventory on hand.

Pro’s

  • Use large amounts inventory to your advantage
  • Flexibility in use of cash

Con’s

  • Higher cost of borrowing
  • Changes with your inventory value

Best for

  • You have lots of inventory
  • Have a strong track record of good inventory management

Examples

Uncapped, Assembled Brands, Yardline, become

6. SBA Loans / Canada Small Business Financing Program (CSBFP)

A variety of different programs. Each program is partially guaranteed by the government. Easier to get than traditional loans.

Pros:

  • Some of the lowest rates on the market.
  • You can borrow up to $5 million.
  • Long repayment terms.

Cons:

  • Hard to qualify.
  • Long and rigorous application process.

Best for:

  • Businesses looking to expand or refinance existing debts.
  • Strong-credit borrowers who can wait a long time for funding.

Examples

Yardline, become, KapitusFinance @SBALenderLyons, @sbabmarks, @SBA_Ray and more

7. Merchant cash advances

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

  • Fast cash.
  • Unsecured financing.

Con’s

  • Some of the highest borrowing costs — up to 350% in some cases.
  • Frequent repayments can create cash flow problems.

Best for

  • Businesses that have high and consistent credit online sales. Can handle frequent repayments.
  • Businesses that can't get financing anywhere else and can't wait for capital.

Examples

OnRamp, 8Fig, WayFlyer, MerchantGrowth,, Liberis, Silvr, Yardline, Lendzi, become, businessloans, KapitusFinance,

8. Purchase Order Financing

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

  • handle larger orders
  • good relationship with suppliers
  • good for limited cash flow and poor credit history

Con’s

  • typically expensive
  • established relationship with suppliers

Best for

  • large PO that’s unusual
  • your industry has long payment cycles

Examples

Assembled Brands, KapitusFinance

9. Non-Recourse Factoring

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.

Pro's

  • Fast cash for your business.
  • Easier approval than traditional funding options.

Con's

  • Costly compared with other options.
  • You lose control over the collection of your invoices.

Best for

  • Businesses with unpaid invoices that need fast cash.
  • Businesses with reliable customers on long payment terms (30, 60 or 90 days).

10. MicroLoans

These are small loans, $1K to $10K in value. Designed to solve quick problems.

Pro's

  • Low cost.
  • Other services may be provided, such as consulting and training.

Con's

  • Smaller loan amounts.
  • You may have to meet stringent eligibility requirements.

Best for

  • Startups and businesses in disadvantaged communities.
  • Businesses seeking only a small amount of financing.

11. Bridge loans

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.

Pro’s

  • fast to get.
  • flexibility. wide variety of uses.

Con’s

  • typically higher interest rates & fee’s
  • may require significant collateral
  • short term solution

Best for

  • business that needs to act quickly
  • business that has poor credit history or can’t get approval from bank

12. Crowdfunding

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.

Pro’s

  • Access to cheap capital
  • Pre-Sell product, test market, & create awareness.

Con’s

  • time consuming effort
  • not suitable for all types of products.

Best for

  • launching new innovative products
  • business who can’t access large capital from traditional banks.

Examples

Kickstarter, Indiegogo,

13. Peer-to-Peer Lending

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

  • access large number of investors
  • flexibility in terms, uses, and more

Con’s

  • more expensive than most options
  • Time consuming to setup.

Best for

  • poor credit history, but track record of biz success
  • comfortable online, not in traditional banks

Examples

Lending Loop, goPeer.ca, KickFurther, Funding Circle, Prosper, and Honeycomb

14. Grants & Government Funding

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

  • basically free capital.
  • used for a wide variety of reasons.

Con’s

  • long processes
  • extensive documentation
  • stringent eligibility requirements

Best for

  • best for local or technology R&D businesses
  • social impact, or infrastructure improvements.

15. Personal loans

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.

Pros:

  • Startups and newer businesses can qualify.
  • Fast funding.

Cons:

  • High borrowing costs.
  • Small borrowing amounts of up to $50,000.
  • Failure to repay can hurt your credit.

Best for:

  • Startups and newer businesses with strong personal credit.
  • Borrowers willing to risk damaging their credit score.

16. Friends, Family, Angels

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.

Pro’s

  • fast and chepa.
  • flexible use of capital

Con’s

  • financial risk to friends & family
  • personal relationship strain

Best for

  • Just getting started, no credit history


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