Loan Alternatives For eCommerce Businesses in 2023

Loan Alternatives For eCommerce Businesses in 2023 Going into 2023, eCommerce financing is evolving almost as fast as eCommerce itself

Loan Alternatives For eCommerce Businesses in 2023

Going into 2023, eCommerce financing is evolving almost as fast as eCommerce itself — and low-cost, interest-free merchant advances are leading the way. This is undoubtedly true for individual SMB owners, but its potential to boost the economy is also being recognized massively.

Forbes even credited alternative financing as a potential solution, at least partially, to mending the global trade finance gap. The trade gap continued to widen, even after 79% of central bank figures stated they maintained capital levels dedicated to bolstering it. Suppose alternative financing could have a salvaging effect on major institutional economic issues. In that case, it's guaranteed to work wonders for the average (and not so average) small business owner.

As far as modern economic trends go, eCommerce has been the most consistently changing. Every time eCommerce businesses capture significantly more market share, the technology radically shifts, paving the way to more market share gains. Online merchants have been amplifying their growth as innovations attract more interest and investments, enriching the eCommerce market enough to bolster the next significant innovation.

Late 2022 figures put the market share of eCommerce at an estimated 22.3% by 2023. Believers in fate may see that as a sign to flex one's cash flow in anticipation.

Alternatively, consider this list of more specific reasons to prepare with more advanced financing strategies and resources. Numerous trends will impact the eCommerce landscape in 2023, making online retail more adaptable to institutional economic instability.

  • Delivery expectations from customers are still increasing, with 30% expecting same-day options
  • Fulfillment centers are opening at a faster rate, shortening the crucial last-mile gap
  • Increasing numbers of digital brands are opening physical storefronts
  • Customers express a higher willingness to pay more for brands with eco-friendly messaging
  • Use of buy-now-pay-later (BNPL) programs (a modern twist on installment payments) is at or above 50% for those born in 1981 or later — but at least some governments plan to regulate the BNPL industry starting in 2023
  • Cryptocurrency payment options have driven eCommerce activity up while simplifying transactions
  • Social channel payment integrations are enabling faster purchases

What New Should eCommerce Businesses Adapt in 2023?

man holding credit card hand entering security code using laptop keyboard

Even eCommerce businesses that generally aren't looking to make significant changes to their basic operations should keep these changes in mind.

Remember when Amazon Prime began shortening shipping times, giving all online merchants pressure to increase their shipping speeds to stay competitive? Significant changes in one aspect of the eCommerce market can create ripple waves with lasting effects for all.

For instance, if your company has yet to make plans to expand physical properties, such as fulfillment centers, you'll still face challenges if your competitor does. In that case, you'd be wise to secure new financing opportunities where you have them. A cash boost will help you outpace the competition in other areas and close the gap in your local market.

Even without making significant changes to your tech stack, you need extra cash to keep prices low, refresh your inventory, and tackle minor problems immediately. Of course, companies that are open to adopting new methods stand to benefit immensely. While it's not wise to embrace every new trend without healthy skepticism, there are some that every online retailer should prepare for.

Beyond any specific trend or innovation, a major demographic shift will impact eCommerce at every level. The generations poised to enter into the commercial world stand at about 2 billion, and they've grown up with mobile communications technology, social media, and eCommerce all at once. Therefore, online merchants capable of accepting social media sales will likely be prepared for the buying patterns of the new wave of consumers in 2023 and beyond.

The demographic influx will also compel online brands to brace for radical shifts in the types of products new customers might want. In a recent Sustainable Packaging Consumer Report, 76% of consumers surveyed said they've been shopping for more "eco-friendly" products.

Styles and preferences, in general, are guaranteed to change. To be adaptive, eCommerce business owners need equally adaptive financing methods. Fortunately, alternate funding strategies have now increased, creating new opportunities to protect one's cash flow needs in more advantageous ways than the bank loans of the past.

Related: Ecommerce Funding: 7 Financing Types (Ranked 2022)

What Are the Latest Loan Alternatives for eCommerce Businesses?

young latin man entrepreneur with lot orders his online shop business owner writing customers information clipboard

Traditional loans come in two categories:

  1. High-interest rate with low requirements
  2. Low-interest rate with high requirements

These two scenarios are the fundamental dynamics that mark loans offered by legacy institutions. Note that there are lending options that use alternatives to interest rates, such as a factor rate fee structure for short-term loans (STL). These are a step away from the lump-sum repayment structures and interest fees you can expect from a long-term loan and a line of credit (LOC).

LOCs and STLs are disconnected from your actual performance and are still more concerned with long-term financial reporting than current business performance. STLs emphasize your daily cash flow more than a credit score, but other options are even more beneficial in this way.

There is a reliable new method called revenue-based financing, which eCommerce businesses can obtain based on the ability to pay from future earnings. Repayments fluctuate according to sales, protecting the merchant from sudden large payments based on a firm schedule and late fees. Instead, revenue-based financing replaces deadlines with a partnership based on promising a certain percentage (even as low as 1%) of future sales until the amount is paid off.

Due to their advantages, many eCommerce businesses engage in ongoing relationships with these alternative financing options. They see the minuscule percentages as an alternative to even the lowest interest rates for business loans and credit cards.

Because of their lower stakes (and risk), they are much easier to acquire. According to a Small Business Lending Index, approval rates from alternative sources are now outranking all other categories. Incredibly, that includes institutional lenders (such as investment firms), small and large banks, and credit unions.

It just may be that the "alternative" sources are becoming the mainstay for the businesses that matter most to consumers — and for countless entrepreneurs, it's about time.

How eCommerce Financing Differs From Traditional Loans

portrait starting small businesses sme owners two asian woman check online orders selling products working with boxs freelance work home office sme business online small medium enterprise

New financing opportunities for eCommerce businesses don't require assets for security. This has been an almost unshakable catch-22 of most traditional lending institutions and a tremendous pain point for new business owners. The ones who need funding the most cannot access it. Even when they find a loan opportunity without unreachable collateral requirements, they pay for it with increasingly stringent arrangements.

In addition, many SMB loans from banks require the company to have been in business for at least two years. For those starting, the fundamental issue is that there's no way to "get in on the ground level."

Now, decentralized economic systems are in the air, and you can be sure modern financing options are taking over or, at least, barging their way to a place at the table. While private financing is nothing new and long predates central banking, eCommerce-specific funding is at the bleeding edge. It creates a relationship of partnership rather than top-down control, and the transactions are facilitated with the same technology used to manage one's online business.

These innovative alternatives can provide much quicker turnover capital, offering cash injections aligned with real-time sales. Thus, payments are timed for maximum impact. They can also be correlated to inventory levels, enabling the company to keep its products in stock without fear of how it affects its cash flow.

Integrating systems can perfectly correlate cash injections with a merchant's sales receipts and inventory levels using a secure, read-only API that connects directly with the vendor's account. Because this auto-replenishment occurs in the background, the business owner enjoys fewer reporting, accounting, and data-reconciliation duties. They can simply focus on the more important business at hand.

Traditional lenders do not get involved like this, having opted to give lump-sum amounts with hefty performance contracts, including unwavering repayment schedules. These terms do not consider advantageous repayment timings for the merchant.

As a result, creditor-debtor relationships with banks are rarely one of partnership and collaboration. What's needed is a funding relationship that keeps both parties on the same page, with shared incentives and goals.

Related: Revenue-Based Financing - The Secret to eCommerce Growth

The Benefits of Adaptive eCommerce Financing

busy female entrepreneur packing handcrafted natural beauty products packages boxes ship online customers

Merchant advances for eCommerce put both the financier and the merchant on the same page. One's continued success is good for the other, and the terms are much more straightforward, akin to a private agreement amongst independent business partners.

The merchant won't be mired in endless legislative red tape, as they're working directly with a private company, not a hopelessly complex financial institution. This gives the merchant and their financing partner immense freedom to pursue their arrangement on their terms, devoid of third-party interference.

It's a new way of doing business, enabling more apparent foresight without having significant portions of one's mental bandwidth taxed by institutions that haven't made their daily operations any easier. Free of harsh and inflexible financing terms, modern eCommerce funding strategies do not operate with monthly due dates or interest rates. Instead, they take a small portion of each sale, meaning the merchant pays when they have something to pay with. Those payments are based on real-world performance, not legalese.

The most competitive companies only require 1% of each sale until paid off, and this nominal fee is deducted automatically in the background. Merchants are then free to concentrate on the most critical aspects of their business as it is rather than treading water with excessive and complex secondary issues. They don't feel continually anxious about the next significant loan repayment, incurring late payment penalties, or defaulting on terms and forfeiting their collateral.

Having freer, more adaptive funding resources than your competition enables you to:

  • Cut costs
  • Secure new inventory
  • Update checkout options
  • Integrate social media points of sale
  • Purchase better analytics, CRM, and sales platforms
  • Invest in fulfillment centers, warehousing, and other facilities
  • Hone your sales channels and optimize search rankings
  • Give yourself a branding or website makeover
  • Upgrade to eco-friendly packaging
  • Conduct market surveys

This last point, as innocuous as it seems, will be important in 2023 and beyond. The reasons are two-fold: (1) an internet-wide shift to first-party data collection and (2) the coming demographics shift.

With any significant changes in market demographics, there are correlating changes in buying patterns and service preferences. Those who take the time to learn these preferences enjoy a greater ability to capitalize on them, and market surveys are highly cost-effective. It also helps you acquire permission-first data collection, which is crucial as support for third-party cookies and specific email-tracking tools is ending.

Determining if Flexible Financing Is Right for You

These are all issues that plagued small business owners in the 20th century. It strained their relationships with customers, who sensed a tendency to abandon the company's main-street roots that initially attracted them to the brand. A 2019 survey of American SMBs found that cash flow management was their sixth-biggest worry, amounting to 17 work days a year spent handling unexpected problems.

That's time that could be spent adding value to their brand and supporting their customers rather than putting out financial fires. Thankfully, it's completely avoidable, especially when there is a fair and independent alternative. With flexible financing comes flexible repayments, which translates to a much more human way of business that customers appreciate.

When considering if revenue-based financing is right for your business, consider it suitable for your customers, employees, and anyone dependent on you. The companies most capable of acquiring new inventory, installing new payment systems, and adapting to their changing demands are most certain to capture more market share in 2023.

No matter what 2023 has in store for the eCommerce industry, one thing's certain: greater funding flexibility will make you much more flexible in your market. To become a leader in your industry, sign up, and get an offer from Onramp today.