Are you looking for an Ecommerce business loan? The truth is, many of your business financing options aren’t truly a loan in the traditional sense. Yet they’re still good ways to fund your small business, whether you’re a startup or have more time in business under your belt.
Let’s explore some of the best choices out there.
7 Best Ecommerce Business Loans:
Loan #1 – Our Credit Line Hybrid
We start with our Credit Line Hybrid because we truly believe that it is a superior form of ecommerce financing.
You can get up to $150,000 with this form of ecommerce funding. All an entrepreneur needs is a good personal credit score—a 700 or better. They will also need at least two open credit cards with two or more years of history and at least a $5,000 limit. This must be a primary card.
To get this ecommerce money, you can have no more than three unsecured accounts opened in the past 12 months. Also, you can have no more than four inquiries per bureau in the last 12 months. This is not including secured inquiries like auto loans or mortgages.
Or, work with a credit partner if your personal credit doesn’t quite cut it. Since this is funding solely based on FICO scores, it’s not revenue based financing. As a result, it’s an ideal form of funding for a startup.
And e-commerce companies won’t have to prove cash flow, either. This is a great form of e-commerce company financing for a brand-new ecommerce store or even an e-commerce venture that’s still in the business ideas stage.
And, an ecommerce company won’t be confronted with the kinds of burdensome document requests that accompany applications for SBA loans, bank business loans, and other more traditional forms of financing for a small business.
Loan #2 – SBA Loans
An SBA loan is on the table when an entrepreneur has a good personal credit score, substantial documents to produce (like business plans), and a few years’ worth of business tax returns.
SBA loans don’t come from the Small Business Administration. Rather, they come from specially designated SBA lenders. These days, such a lender may be an online business, just like yours.
SBA loans come with great rates and you can get up to $5 million for your small business. The most popular is the 7(a) which in turn comes in more than one business line of credit variety (CAPLines).
The 504 is best for financing real estate purchases and renovations. But you cannot use it for speculative purposes, such as flipping houses.
Keep in mind that SBA loans take a while. If you want fast e-commerce financing, then SBA loans are not a great option for funding. Also, there are some restrictions on use of the funding, as noted above. And, SBA loans are not available to certain industries, such as cannabis.
An ecommerce business should take a closer look at SBA loans, particularly if they are in an industry which meets SBA requirements and can produce the small business documentation necessary to qualify for this form of financing.
But if not, there are other choices out there for funding.
Loan #3 – Get a Term Loan
Often when we think about any sort of business loan, we think of a traditional lender, a bank loan. But there are online providers as well. Yours is an online business, so why not get a term e-commerce business loan from an online business?
If you go the more traditional route, you can work with a bank or credit union as the lender. With a bank in particular, you will need to provide business documents. This is often a business plan and tax returns. You will also, most likely, have to provide business financials.
An e-commerce company that has been in business for longer (say, a few years) has a better chance of getting this form of funding versus a startup business. These types of business loans are also more likely to be available to an entrepreneur with a good personal credit score.
Good business credit is helpful, as is proof of regular, dependable monthly revenue in the tens of thousands of dollars in cash, if not more.
The advantage of this type of funding is that you may be able to get a higher loan amount than with some of these other financing choices.
Also, this type of funding is heavily regulated by the government, keeping interest rates in check—which doesn’t happen with the next financing choice we’re showcasing today.
Loan #4 – Merchant Cash Advance
An MCA is only one type of business funding based on business cash flow. There is also accounts receivable financing and cash flow financing.
An MCA is a business financing option based on your business’s credit card receipts.
Unpaid credit card receipts are valuable! You can sell them for a high percentage of their value and stop worrying about collecting from slower customers. Let the company you sell the credit card receipts to.
As for you, the business owner, you can provide net 30 or even net 90 terms without harming your business cash flow. Offering generous payment terms is a good way to get customers. It’s also a good way to establish a toehold in an industry when your small business is a startup.
An MCA is essentially a great way to offer great credit terms without sabotaging your company’s efforts to build business credit. But keep in mind that interest rates are high, and the repayment term is often short.
This type of business funding is only possible for a small business with credit card receipts. Therefore, if you do not yet have a merchant account to accept credit card payments, there’s no time like the present to get one.
Loan #5 – Inventory Financing
Unsold inventory is, understandably, a business asset. But did you know that you could use it to get funding?
According to Investopedia, “The term inventory financing refers to a short-term loan or a revolving line of credit that is acquired by a company so it can purchase products to sell at a later date. These products serve as the collateral for the loan.”
The best use of this type of funding is for businesses which need to warehouse stock before they sell it to customers. For example, seasonal businesses may take the slowness of the off-season as an opportunity to stock up on the products they offer.
But with financing using the products as collateral, the seasonal business is able to maintain its cash flow—and pay its own bills—even when there’s little to no revenue coming in.
Positives include the fact that a company in business for as little as six months should be able to qualify. Also, smaller business owners don’t have to put up their personal or business assets in order to secure financing.
Lenders will scrutinize the proposed collateral carefully. Anything that is perishable is not going to work as collateral for this form of funding. Also, interest rates can be high.
For our sample seasonal business, it could be too much of a burden to take on this kind of debt when the money isn’t rolling in.
Loan #6 – A Business Credit Card or Credit Cards
At Credit Suite, we make it our business to know which e-commerce and brick and mortar credit providers will report positive payment experiences—thereby making it possible for you to build good business credit.
We keep track so you can get to doing what you do best—running your e-commerce corporation. And while this isn’t an e-commerce loan per se, good business credit leads directly to approval for a small business loan.
And the better your e-commerce corporation credit is, the better small business loan options you’ll get.
Even a startup can get corporate credit and improve their chances of getting any form of loan. It is also a way to leverage your payment history to hold onto more of your business money now, while still purchasing the goods and services that your business needs.
Company credit is also an asset and can even be figured in the price in the event you ever want to sell your e-commerce corporation. It will also help you get SBA lending, our #2 financing choice, above.
And, it helps to protect your personal credit scores and personal assets. In this way, business credit is a better choice than our final selection.
Loan #7 – Personal Loan
For business owners who own their own homes, a home equity loan or line of credit (also referred to as a HELOC) can be a good choice. Leveraging the equity in your home can help you get a substantial loan for your business.
In particular, a HELOC can be a decent option for getting started. A house is the largest asset most people own, and it can make for a good collateral. But you should not rely on it forever.
Not every business makes it. If you default on personal lending, your personal assets are going to be on the line. Do you want to risk your car, a second home if you have one, a boat or a camper or any other major asset?
Also personal lending that isn’t a HELOC is going to rely heavily on your personal credit scores (in that way, it’s a little bit like our Credit Line Hybrid, above). This means that a default on personal lending is going to directly affect your personal credit scores.
There is a lot at stake when you go for personal lending. If you have absolutely no other options, then it can be acceptable. But we do not recommend it. And, you really should explore other options such as the ones outlined above.
Ecommerce Loan Requirements
Requirements are going to vary, depending on the type of funding and the lending institution (or credit provider as applicable).
However, there are certain somewhat universal requirements out there.
Time in Business
Because virtually anyone can start a business online these days, lending institutions and credit providers are understandably going to be cautious. In general, they are going to pass on lending to a company in business for less than six months to a year.
Companies on the lower end of the spectrum will have inventory funding, business credit, and possibly MCAs as their choices. There are also, potentially, personal loans. Our Credit Line Hybrid can also work for them.
More time in business will open doors to SBA lending and more traditional loans from banks.
Company Owner FICO Scores
Truly terrible personal credit (as in, in the 500s or lower) will make qualifying a lot more difficult. Business owners will have to compensate for this with things like substantial collateral and/or time in business and/or demonstrated substantial, provable, and reliable revenue.
Once we get into the higher 500s and 600s, MCAs and inventory lending will start to open up.
It’s likely that personal lending would only come in the form of a HELOC, as the real estate serves as collateral and is independent of consumer credit scores. But as FICO scores get into the lower 600s and up, other personal lending may be on the table.
Business credit will also open up once FICO scores are in the mid-600s or higher. SBA lending and traditional term lending may or may not be available. But certainly when FICO scores hit the 700s, they will be.
Our Credit Line Hybrid is available to entrepreneurs with a 700 or better credit score.
Revenue
This will depend on the financing product and the lending institution. But provable and substantial revenue will cover a multitude of sins when it comes to consumer credit scores and/or time in business.
How to Choose the Best Ecommerce Business Loan
Like with other forms of lending, your best choice will come down to a few factors.
Interest Rate
For products which are not traditional lending (and thereby are not covered under banking laws), interest rates can be higher.
Plus, there are places where there is no interest rate limit (usury law). In those states, interest rates for those forms of lending aren’t tied to the Prime Rate.
Inventory funding and MCAs are most likely to have higher interest rates.
Repayment Term
The longer the repayment period, the better. MCAs in particular can have shorter repayment periods. Term lending and SBA lending, on the other hand, can have repayment terms that are years long.
Amount on Offer
How much can you borrow, or get in credit? A HELOC will often be a generous percentage of the equity in a home. Our Credit Line Hybrid goes up to $150,000. And SBA lending goes up to $5 million.
MCAs are generally a lot less, and inventory funding will be tied to the value of your inventory (the collateral).
Balancing These Factors
Entrepreneurs will need to look at these factors on a sliding scale. If they don’t need a lot of money and can pay it back quickly, higher interest rates won’t be quite so important.
If their FICO scores aren’t great, then they may have to take MCAs so they can get something. But if they are expecting incoming profits from better customers (who pay their credit receipts more quickly), an MCA could be a good way to tide a business over.
Also, entrepreneurs with poor FICO scores should weigh their ability to work with a credit partner. That could be an enormous game-changer.
Takeaways
Businesses that are purely online have the same kinds of financing needs as brick and mortar establishments do. Funding choices include term lending, business credit cards, and MCAs.
Other forms of company funding include SBA lending and inventory funding.
And our Credit Line Hybrid can be the perfect fit for a business where the owner has good FICO scores.
Why not contact us today to explore your options—and learn more about how we can help you increase your business’s chances for approval for all sorts of financing?
