5 eCommerce Funding Solutions Explained
Businesses of all shapes and sizes need financing to grow, bridge cash flow gaps, and cover unexpected expenses. For eCommerce businesses, financing is especially helpful when platforms don’t issue payouts for two weeks or longer.
Fortunately, there are a variety of funding solutions out there, including platform-specific lending, financing specially designed for marketplace sellers, and traditional funding options.
To help you make sense of your options so you can find the right one for your eCommerce business, here are five funding sources explained:
1. Amazon Lending
What it is: Amazon Lending offers of up to $750,000 may appear in your Amazon dashboard if your seller account fits their criteria. If you qualify, you’ll see an offer in Seller Central. It will include the terms you qualify for — such as funding amount, payment terms, rate, etc. From there, you will still have to apply. Rates are not shared publicly, but Amazon seller forums mention ranges from 3% - 16.9% APR.
Why use it: If you are a highly successful Amazon seller with a proven track record of consistent and growing sales and you see an offer in Seller Central from Amazon Lending, you can apply. If approved, you can use the funds to invest in inventory, new products, or marketing.
Pros:
● Simple process: Online application with decisions and funding within five business days.
● Transparent loan terms: Amazon Lending loans range from $1,000 - $750,000 with payment terms up to 12 months
Cons:
● Can’t apply directly: You cannot apply for an Amazon Lending loan directly. It is strictly an invite-only program for sellers that meet Amazon’s lending criteria.
● Fixed offer: The offer you get in Seller Central is fixed. You can accept an amount up to the max that is offered, but you cannot negotiate for more money, different terms, or a different rate. You either accept the offer and apply, or ignore it and hope for a different one in the future.
● No multi-channel options: The lending offers you might receive only factor in your Amazon sales. Your selling history on other channels is not included in your lending decision.
2. Shopify Capital
What it is: Shopify launched Shopify Capital to offer its users merchant cash advances and business loans up to $1 million. Similar to Amazon Lending, Shopify Capital is an invite-only program.
If you use a Shopify website and/or their point-of-sale tools AND you meet their minimum criteria, you’ll see an offer in your Shopify account. All offers are based on your Shopify business history.
Regarding repayment, they’ll deduct a fixed percentage of your daily sales, which means your daily payment amount depends on how much you sell each day.
Why use it: If you receive a pre-qualified offer from Shopify and end up getting approved, you can use the funds to prepare for seasonality or invest in inventory or other growth opportunities.
Pros:
● Simple application: Apply online with minimal paperwork and no credit checks. If approved, you’ll receive funding within days.
● Flexible repayment: If you have a slow day, your repayment amount decreases accordingly.
Cons:
● Can’t apply directly: You cannot apply directly for Shopify Capital financing. You’ll have to wait to see a pre-qualified offer in your account.
● No multi-channel options: Just like Amazon Lending, Shopify Capital does not factor in any other channels you sell on. They only look at your Shopify business history.
What it is: Payability is a financing company designed specifically for e-commerce and marketplace sellers. They offer two solutions: Instant Access and Instant Advance.
With Instant Access, you get daily payouts on your marketplace sales, the next business day, every business day. With Instant Advance, you get an advance on your future receivables (i.e. eCommerce sales) up to $250,000. In lieu of interest, there is a fixed, flat fee.
Why use it: Payabilty’s daily payments via Instant Access allow you to finally take control of your cash flow so you can reinvest in inventory more quickly and grow your business faster. Use Payability to buy bulk inventory, invest in marketing campaigns, hire new employees, and/or take advantage of other growth opportunities.
Pros:
● Prepayment benefits: Receive a fee rebate for every week you pay your Instant Advance back early.
● Multichannel options: Payability works for sellers using Amazon, Walmart, Shopify, eBay, Tophatter, Etsy, Newegg, and more. And, they factor in your sales history across all the platforms you sell on, allowing for a more comprehensive review of your financing eligibility.
● Simple application with no credit check: There is a 10-minute online application with no paperwork and no credit check. Get decisions and funding in as fast as 24 hours.
● Dedicated customer support: Payability has a dedicated support team of U.S.-based agents to help answer any questions you might have about an offer or your account.
Cons:
● Credit limit: You’ll only get an advance on what you actually sell or expect to sell. As your business grows, you’ll be able to get more.
What it is: Business owners of all kinds often rely on credit cards to finance their businesses, especially in the early days. In fact, credit cards are often their only option, allowing owners to ultimately buy now and pay later. Interest rates vary depending on your credit history and the credit card issuer, with most business credit card offering rates up to 25% APR.
Why use it: If you’re in the early stages of your business, do not have enough sales history for a financing application, and have a history of responsibly using credit cards, they might make sense for your business.
Pros:
● Cash back rewards: Most credit cards come with 2% cash back rewards on purchases, allowing you to earn as you spend.
● Immediate access: If you have a credit card already, you can start using it right away to make purchases. Unlike a loan or other type of financing, you don’t have to wait days or weeks for funding to hit your account.
Cons:
● Credit limit: You can only spend as much as your credit limit allows.
● Compounding interest: Interest payments can compound quickly if you don’t pay your balance in full or on time every month.
5. Traditional Bank Loans and Lines of Credit
What it is: Banks and other traditional lenders have been offering loans and lines of credit to businesses for decades. Loans are large lump sums of cash while lines of credit are revolving funds to draw from as you need.
In general, loan amounts and credit lines from banks are large (sometimes well into the seven figures), and interest rates are low. However, approval rates are higher for large, established businesses that have physical locations.
This is largely because a bank’s application and underwriting processes can take weeks or months and their resources are better spent on a $20 million business looking for a $1 million loan than on a small or online business that might need $100,000 or less.
Why use it: If you’re a long-time seller with a proven track record for growth, you might qualify for bank financing. Keep in mind that banks put a lot of emphasis on the FICO score of a business owner, so if you have solid credit, that will help. If approved, you should be able to use bank financing for whatever expenses and/or growth opportunities you have.
Pros:
● Favorable terms: Banks offer large loan amounts and low interest rates.
Cons:
● Long application process: The application process can take weeks or months, and requires a lot of paperwork. You should expect to submit bank and other financial statements, a business plan, tax returns, and more. A loan officer might even need to do a site visit.
● Low approval rates for small and online businesses: Banks tend to lend to very large businesses that have physical locations.
As you can see, there are a number of business financing solutions out there and they’re not all created equal. To help you decide which one is right for your business, consider the following criteria:
● Your eCommerce portfolio: In other words, how many channels you sell on.
● Funding need: Do you need to maximize cash flow, make a specific investment, etc.?
● Funding amount: How much money do you need?
● Timing: When do you need the funds in-hand?
From there, you’ll be able to narrow down your options. If you see that Payability checks all the boxes and want to discuss your options, feel free to reach out to their U.S.-based team today or visit go.payability.com/capitalandgrowth and receive a $250 sign on bonus when you become a new Payability customer.
