eCommerce Financing: Explained

  1. eCommerce Financing
  2. eCommerce Financing: Explained

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ecommerce financing

The young eCommerce industry is unique in many ways. But like every other industry, businesses in eCommerce need financing. The options for eCommerce financing are different than financing options for other businesses. In some ways, eCommerce financing is even better.

There are several options for eCommerce companies. These options include both traditional-styled loans and newer financing options. You can also provide consumer credit to empower your customers and increase your sales. So, let’s dive right into what eCommerce financing is and how it can help you.

What Is eCommerce Financing?

eCommerce financing is financing for web-based businesses that sell products online. This can come in the form of a Shopify store, Amazon sellers online, or a custom online store. The funding options for these businesses include:

  • Inventory Financing based on cash flow
  • Lines of credit secured by inventory
  • General Business Loans
  • Invoice factoring
  • Business credit cards

View our application for e-Commerce Funding.

When Is eCommerce Financing Used?

Inventory / Growth Financing

eCommerce businesses face many of the same financial challenges as other businesses. Working capital needs like inventory and other expenses like taxes and memberships can be covered with other forms of eCommerce financing.

Business Emergency Funding

Short-term financial struggles are often tackled with short-term eCommerce financing. But you can also finance expansions and sudden large expenses, for example, like taking on a new massive order.

Purchasing Power / Vendor Leverage

The reason for borrowing most unique to eCommerce is to give online customers more purchasing power. This new dynamic has made much of the industry into a form of consumer credit.

View our application for e-Commerce Funding.

Financing Requirements

Most eCommerce financing products carry slightly different requirements than traditional business financing options. There is typically a larger emphasis placed on your business’s sales performance. At the same time, there is typically less attention paid to your credit score.

Financing Amounts

You can typically receive the financing you need and are eligible for through eCommerce financing. Fintech lending has helped open up borrowing options for online businesses. So, you can often apply for financing as low as a few hundred dollars. Of course, if you qualify, you can find loans for hundreds of thousands or even millions of dollars, usually from the same lender.

As is the case with any business loans, your results will be determined

Consumer Credit

Some financing products allow you to give your customers more buying power. This form of consumer credit allows your customers to buy what they need right now and pay the full purchase price over time. This kind of consumer credit gives eCommerce businesses a boost through the purchasing power they pass onto their customers. It’s also a form of borrowing that can provide a fast return on investment for eCommerce businesses.

How Does eCommerce Financing Consumer Credit Work?

Consumer credit is a risky but often worthwhile pursuit for eCommerce businesses.

Loan & Rate Types

There are also several financing types to choose from. You can choose between flat-rate and discount-rate programs. Some programs like PayPal’s are no-charge financing programs, but you’ll have to pay their fees.

Is eCommerce Financing Consumer Credit Right For Me?

If you’re in the eCommerce industry, the answer is yes. There is always something to gain from eCommerce financing, whether through guaranteeing you have the working capital you need or using consumer credit to increase your business. But none of this means that eCommerce financing is a perfect, risk-free option.

Risk

Giving your consumers credit can increase your sales. But for that to happen your customers must pay back what they’ve borrowed.

For that reason, it’s worthwhile to be frugal and save more money in case you’re left hanging by a bad customer. When you start using consumer credit, you’ll have to take a small hit and wait until your customers start making their payments.

View our application for e-Commerce Funding.

Risk Mitigation

It’s up to you to determine the risk that eCommerce financing presents to your business. After that, you can act accordingly.

You can determine how creditworthy your customers are before offering them consumer credit. But even creditworthy borrowers represent some risk to your business.

Fortunately, you can use consumer credit products that incentivize your customers to pay on time. For example, you can offer lower interest for customers that pay in full by a specified time. You can also use free-to-offer consumer credit from some companies, including PayPal.

Last Word

If you’re prepared to take the precautions we’ve gone over, eCommerce financing is likely the right option for you. Like any form of financing, it carries risk. But when handled responsibly, eCommerce financing offers your business what it needs.

Consumer credit for eCommerce customers can empower your business by empowering your customers. But before you make the choice, self-assessment is what you need to make sure you make the right decision. Temporary measures to be prepared for a temporary drop in cash flow are recommended.

Not sure where to go for a business loan? Read these quick & helpful guides:
Check out our preferred marketplace lenders.

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