Want to secure funding for your eCommerce business? Here's a simple 5-step guide to assess your creditworthiness and prepare for revenue-based financing, a flexible option tailored to your sales performance.
Quick Overview:
- Check Financial Health: Review sales trends, cash flow, and existing debts.
- Review Credit Scores: Understand personal (300–850) and business (0–100) credit scores.
- Measure Revenue Stability: Analyze consistent sales and customer data.
- List Assets: Identify inventory or other collateral, if needed.
- Know Lender Requirements: Ensure $3,000+ monthly sales and platform compatibility.
Revenue-based financing adjusts repayments to your sales, making it a practical option for growing eCommerce businesses. Ready to dive deeper? Let’s break it down step-by-step.
Command Credit How to Check My Business Credit Score
Step 1: Check Business Financial Health
Before applying for financing, take a close look at your eCommerce business’s financial health. This step ensures you're in a solid position to pursue revenue-based financing.
Key Financial Health Factors
When evaluating your business’s financial state, pay attention to these essential elements:
- Sales History: Look for growth trends and any seasonal patterns in your sales records. These insights can help predict future performance.
- Cash Flow Needs: Review your cash inflows and outflows to confirm you have enough liquidity to cover daily operations.
- Debt Positions: Examine your existing debts to ensure repayment obligations are manageable alongside new financing.
Preparing Your Financial Documentation
Gather and organize financial records that clearly show your sales performance and cash flow trends. Proper documentation will make the application process smoother and help demonstrate your business’s readiness for financing.
Step 2: Review Credit Scores and History
When you're looking for eCommerce financing, understanding your credit profile is a must. Both personal and business credit scores play a role in determining your creditworthiness, with each using a unique scoring system: personal scores range from 300 to 850, while business scores typically fall between 0 and 100.
Credit Score Basics
Personal Credit Scores (FICO)
Your personal credit score is broken down into five key factors:
- Payment history: 35% of your score depends on whether you pay your bills on time.
- Credit utilization: 30% reflects how much of your available credit you’re using.
- Length of credit history: 15% considers how long your accounts have been active.
- Credit mix: 10% evaluates the variety of credit types you have, like loans and credit cards.
- New credit inquiries: 10% accounts for how often you’ve applied for new credit.
Business Credit Scores
Business credit scores, on the other hand, are influenced by:
- Payment history for business accounts
- Public records, such as bankruptcies or liens
- The size and age of your business
- Industry-specific risk factors
| Credit Score Range | Classification | Impact on Financing |
|---|---|---|
| 740-850 | Excellent | Best rates, 20-30% higher loan amounts |
| 670-739 | Good | Standard approval odds |
| 580-669 | Fair | Higher rates, fewer options |
| Below 580 | Poor | Significant challenges |
Improving your credit scores can open doors to better financing terms and set you up for long-term financial success.
Steps to Build Better Credit
Monitor Your Reports
Keep tabs on your personal credit by visiting AnnualCreditReport.com, and check your business credit through major business credit bureaus. Regular monitoring helps you stay on top of any changes or errors.
Reduce Credit Utilization
Aim to keep your credit card balances under 30% of your available credit. A good strategy is to set up autopay and make two payments each month to ensure your utilization stays low.
"For eCommerce businesses using credit for inventory purchases, lenders understand seasonal fluctuations but still prefer lower overall utilization".
Establish Business Credit
Separate your personal and business finances. Start by forming an LLC, getting an EIN and D-U-N-S number, and setting up dedicated business bank accounts. This creates a clear distinction between your personal and business credit profiles.
Fix Credit Report Errors
Errors on your credit report can hurt your score, so it’s important to address them. Common issues include:
- Incorrect payment records
- Outdated information
- Identity mix-ups
- Balance inaccuracies
- Duplicate accounts
You can dispute these errors online with the credit bureaus. Be sure to include supporting documentation, and check back after 30 days to confirm the corrections have been made.
Taking these steps not only strengthens your credit profile but also enhances your business’s financial health, making you more attractive to lenders offering revenue-based financing.
Step 3: Measure Revenue Stability and Growth
When it comes to securing eCommerce financing, lenders want to see steady, reliable revenue. Consistent income reassures them that your business can handle repayments without strain.
Review Historical Sales Trends
Start by examining your sales data from the past six months. A steady or gradually increasing monthly revenue can reflect a healthy business trajectory. If your sales fluctuate seasonally, pinpoint those peaks and dips so you can explain them to potential lenders.
"We evaluate your sales history, cash flow needs, and debt positions to make you an offer that fits with your cash flow capability. We structure your financing to ensure you're not putting your business at risk with too much debt."
– Onramp Funds
While historical trends provide a foundation, understanding customer behavior can help you refine your revenue outlook even further.
Using Customer Data to Project Future Sales
Your past performance is only part of the story. Dig into customer data to forecast what lies ahead. By analyzing buying habits, you can predict future revenue with greater confidence. Focus on key metrics like:
- Repeat Purchase Rate: How often customers come back for more.
- Customer Lifetime Value (CLV): The total revenue you can expect from a single customer over time.
- Purchase Frequency: The average time between purchases.
To get the clearest picture, keep detailed records of sales from all your platforms - whether you're selling on Amazon, Shopify, Walmart Marketplace, or elsewhere. A full view of your revenue trends not only helps you plan better but also makes a strong case when applying for revenue-based financing.
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Step 4: List Business Assets and Collateral
When applying for eCommerce financing, it's important to evaluate what assets or collateral you can leverage. While traditional loans often rely on physical assets, newer financing options provide greater flexibility, especially for digital businesses.
Common Collateral Types
Traditional loans usually require tangible assets as security. For eCommerce businesses, these might include:
- Inventory: Your current stock and any planned future purchases.
- Equipment: Tools like machinery, packaging systems, or office tech.
- Accounts Receivable: Payments owed by customers.
- Commercial Property: Warehouses or fulfillment centers.
- Personal Assets: Real estate or investment accounts.
However, not every eCommerce business has extensive physical assets. That’s where modern financing solutions come in.
Financing Without Physical Assets
Revenue-based financing is a game-changer for digital businesses. It offers funding without the need for traditional collateral, focusing instead on your business’s performance.
Take Kindfolk Yoga, for example. Jeremy, the business owner, shared his experience:
"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable time frame once we made sales. The process was quick, easy, and the support was great."
Here’s why this approach works so well:
- No Physical Collateral Required: Funding is based on your revenue, not assets.
- Flexible Repayment: Payments adjust to your sales cycles.
- Fast Access: The approval process is simplified and quick.
- Seamless Integration: Direct connections with major eCommerce platforms.
To qualify for revenue-based financing, most providers look for:
- A minimum average of $3,000 in monthly sales.
- A history of active selling on supported platforms.
- Consistent revenue trends with growth potential.
This type of financing opens up opportunities for digital businesses that might otherwise struggle with traditional collateral requirements.
Step 5: Know Lender Requirements
Understanding what your lender needs is crucial when pursuing revenue-based financing for your eCommerce business. This financing model prioritizes your business’s performance over personal credit, making it a more accessible option for online sellers.
Sales-Based Funding Rules
Revenue-based financing focuses on specific performance metrics to assess your eligibility. Here’s what lenders typically look for:
- Minimum Revenue: Your business should generate at least $3,000 in average monthly sales.
- Business Structure: You must operate as a legal entity in the U.S., such as an LLC, Single-Member LLC, C-Corp, or S-Corp.
- Platform Compatibility: Your store should actively sell on supported eCommerce platforms.
- Performance History: Consistent revenue trends are essential for qualification.
Connecting Your Store Data
To get started, you’ll need to connect your store data to the lender’s system. Here’s how it works:
- Platform Selection: Ensure your store operates on a supported platform like Amazon, Shopify, TikTok Shop, WooCommerce, BigCommerce, Squarespace, Walmart, or Shopline.
- Secure Connection: Grant the lender read-only access to your store’s data.
- Bank Integration: Link your business banking account for financial review.
- Review Process: Once connected, the platform analyzes your sales history, often providing a pre-qualification decision within minutes.
By securely sharing your store data, lenders can create repayment plans that align with your revenue patterns.
Sales-Based Repayment Plans
"We evaluate your sales history, cash flow needs, and debt positions to make you an offer that fits with your cash flow capability. We structure your financing to ensure you're not putting your business at risk with too much debt".
Repayment plans for revenue-based financing are designed to adapt to your business’s cash flow. Here’s what to expect:
| Feature | Benefit |
|---|---|
| Sales-Based Payments | Payments automatically adjust based on your revenue. |
| Flexible Timing | Repayments align with sales deposits, reducing strain during slow periods. |
| No Fixed Schedule | No set repayment dates, offering flexibility during fluctuating sales. |
| Transparent Structure | Fees are straightforward, typically ranging between 2–8%. |
According to Onramp Funds, businesses that receive this type of funding often see a 0% revenue increase within 180 days.
This repayment flexibility ensures your business isn’t overburdened, allowing you to focus on growth while managing debt responsibly.
Conclusion: Next Steps for Loan Preparation
5-Step Process Summary
Now that you've gone through the creditworthiness assessment process, you're in a stronger position to explore revenue-based financing for your eCommerce business. Here's a quick recap of the essential steps we covered:
| Assessment Step | Key Focus Areas |
|---|---|
| Financial Health | Liquidity, cash flow metrics, and financial documentation |
| Credit Review | Business and personal credit scores, credit history |
| Revenue Analysis | Sales consistency, growth trends, and customer insights |
| Asset Evaluation | Collateral availability and inventory value |
| Lender Requirements | Platform compatibility and minimum revenue thresholds |
These insights will guide you toward a smoother funding experience.
Start Your Funding Journey
With your assessment complete, you're ready to take the next steps. Here's how to proceed:
1. Initial Assessment
Use a funding calculator to estimate how much capital you could qualify for based on your average monthly revenue (at least $3,000). This helps you understand your funding potential before diving into the formal application process.
2. Platform Connection
Link your eCommerce store to receive a tailored funding offer. As Adam B. from The Full Spectrum Company puts it:
"Onramp's process is very straightforward and easy to navigate. I had funds in my account within a day of final approval"
3. Review and Accept
Examine your funding offer and choose the one that aligns best with your business goals. Nick James, CEO of Rockless Table, shares his experience:
"Applied, got our offer, and had cash in our bank account within 24 hours. Their Austin, TX based team was very professional and helped me deploy the cash to effectively grow our business"
Revenue-based financing gives you the flexibility to grow your business - whether it's funding inventory, marketing campaigns, or operational needs - with repayments that adjust to your sales.
FAQs
What steps can I take to improve my personal and business credit scores for better eCommerce loan eligibility?
Improving both your personal and business credit scores can open doors to better opportunities for securing eCommerce loans. Here are some practical steps to help you get there:
- Pay your bills on time: Consistently making timely payments for personal and business expenses shows lenders that you're financially reliable.
- Cut down on debt: Reducing your credit balances lowers your credit utilization ratio, which can have a positive effect on your credit score.
- Keep an eye on your credit reports: Regularly review both your personal and business credit reports to spot any errors or inaccuracies. If you find something wrong, dispute it promptly.
- Build strong credit history: For your business, establish trade accounts with suppliers and maintain good payment habits. On the personal side, keeping older credit accounts open can boost your score over time.
Focusing on these steps can help you strengthen your financial standing and improve your chances of qualifying for revenue-based financing options like those provided by Onramp Funds. These solutions are designed specifically to address the needs of eCommerce businesses.
How does revenue-based financing benefit eCommerce businesses compared to traditional loans?
Revenue-based financing offers repayment options that adapt to your sales, making it especially appealing for eCommerce businesses dealing with fluctuating income. Instead of being tied to fixed monthly payments like traditional loans, this model lets businesses pay back a percentage of their sales. This flexibility can help ease the pressure on cash flow during slower sales periods.
Platforms like Onramp Funds provide eCommerce sellers with quick, equity-free funding to grow their business. Whether it’s for stocking up on inventory, expanding marketing efforts, or scaling operations, this approach eliminates the rigid terms of traditional financing, catering specifically to the needs of online sellers.
How does connecting my eCommerce store's data help with the loan application process?
When you securely link your eCommerce store's data, the lender gains access to your sales performance and revenue trends. This insight helps them create a financing offer that fits your business needs. By analyzing real-time sales data, the lender can also speed up the approval process, ensuring it's quicker and more precise for eCommerce sellers like you.
