Running a BigCommerce store often requires financing to manage cash flow, inventory, and marketing. Here's a quick guide to the three main funding options for sellers:
- Revenue-Based Financing: Flexible repayment tied to your sales. Ideal for seasonal businesses. Quick approval (1–3 days) but higher costs.
- Bank Loans: Fixed payments, lower interest rates, and long terms. Best for established businesses but requires collateral and takes weeks for approval.
- Merchant Cash Advances (MCAs): Fastest funding (24–48 hours) with repayment based on daily/weekly sales. Great for emergencies but expensive.
Quick Comparison
| Feature | Revenue-Based Financing | Bank Loans | Merchant Cash Advances |
|---|---|---|---|
| Approval Time | 1–3 days | 2–8 weeks | 24–48 hours |
| Credit Requirements | Moderate | High | Low |
| Repayment | % of sales | Fixed monthly payments | Daily/weekly % of sales |
| Best For | Seasonal/growth needs | Long-term investments | Urgent cash needs |
Choose based on your business stage, sales patterns, and urgency.
Should You Use Amazon Lending If You Are An eCommerce Seller?
1. Revenue-Based Funding
Revenue-based funding (RBF) is a flexible financing option that’s gaining popularity among BigCommerce sellers. Unlike traditional loans, RBF adjusts repayment based on how well your business is performing, making it a more adaptable choice for many eCommerce businesses.
Repayment Structure
One of the standout features of revenue-based funding is its repayment model. Instead of committing to fixed monthly payments, you repay a set percentage of your revenue - daily or monthly - until you’ve paid back the agreed-upon total. This percentage typically falls between 1% and 20% of your gross revenue, depending on your business profile and the terms of the funding.
For example, if your revenue for the month is $50,000 and your repayment percentage is 10%, you’d pay $5,000. If your revenue drops to $30,000, your payment would adjust to $3,000. This flexibility is especially helpful during slower sales periods.
Approval Speed
One of the advantages of revenue-based funding is how quickly you can access the funds. Here's a breakdown of the timeline:
| Process Stage | Timeline |
|---|---|
| Initial Application Review | 24–48 hours |
| Final Approval | 2–3 business days |
| Fund Disbursement | 2–5 business days |
This speed can be a game-changer for businesses that need funding urgently.
Cost of Capital
RBF providers use a flat fee structure instead of traditional interest rates. The cost is expressed as a factor rate, which typically ranges from 1.1× to 1.5× the amount you borrow. Here’s how it works:
| Funding Amount | Factor Rate | Total Repayment |
|---|---|---|
| $100,000 | 1.1× | $110,000 |
| $100,000 | 1.3× | $130,000 |
| $100,000 | 1.5× | $150,000 |
This predictable structure makes it easier to plan for repayment costs.
Flexibility
RBF is particularly appealing to BigCommerce sellers who experience seasonal sales fluctuations. For example, providers like Onramp Funds offer solutions that adapt to your sales patterns. Key benefits include:
- No fixed monthly payments
- Freedom to use the funds for inventory, marketing, or operations
- No need for collateral
- Quick access to additional funding if needed
To qualify for revenue-based funding, most providers require the following:
- A minimum monthly revenue of $10,000–$25,000
- At least 6–12 months of business operations
- Profit margins of 10–15% or higher
- Consistent revenue streams, even if they vary seasonally
This funding option is designed to give businesses the breathing room they need to grow without the rigid constraints of traditional financing.
2. Bank Loans
Bank loans stand out for their fixed repayment structures and predictable terms, making them ideal for businesses seeking steady, long-term financing. Unlike revenue-based funding, which adjusts to sales performance, bank loans require consistent monthly payments and come with more rigorous application processes.
Approval Speed
The time it takes to get a bank loan approved and funded can vary significantly depending on the type of loan and the lender.
| Loan Type | Typical Approval Time | Funding Time |
|---|---|---|
| Traditional Bank Loan | 2–4 weeks | Up to an additional 30 days |
| SBA 7(a) Loan | 60–90 days | 2–3 weeks after approval |
| SBA Express Loan | Around 20 days total | - |
"While SBA loans typically take longer to process than other types of business financing, their low rates, long terms, and manageable monthly payments generally make them worth the effort." - Alicia Smith
Cost of Capital
Bank loans are known for offering competitive interest rates, but these rates are often reserved for businesses with strong credit histories. Factors like your business credit score, financial stability, annual revenue, and available collateral all play a role in determining the final rate.
Repayment Structure
Bank loans come with fixed monthly payments over terms that can range from 3 to 25 years. These payments remain consistent, regardless of fluctuations in your business revenue. While this predictability is great for long-term planning, it may pose challenges for businesses with seasonal revenue cycles.
Flexibility
Bank loans are less flexible compared to other funding options due to their stringent requirements. Here's what lenders typically look for:
| Aspect | Requirements |
|---|---|
| Documentation | Tax returns, financial statements, revenue reports |
| Credit Profile | Strong credit history, 2+ years in business |
| Collateral | Often required for loan approval |
| Business Account | Established relationship with a business bank |
To make the bank loan process smoother, consider these tips:
- Get Organized: Have all necessary documents ready before applying.
- Work with Experts: Partner with an SBA-preferred lender if you're pursuing an SBA loan.
- Speed Up Disbursement: Opt for electronic transfers to receive funds faster.
- Stay Connected: Maintain open communication with your lender throughout the process.
Next, we’ll explore how merchant cash advances provide a quicker alternative to traditional bank loans.
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3. Cash Advances
Merchant cash advances (MCAs) offer BigCommerce sellers a fast and flexible way to secure funds when they need capital quickly.
Approval Speed
One of the biggest advantages of MCAs is how quickly they’re approved. Sellers can often access funds within 24–48 hours, making this an ideal option for situations where timing is critical.
Cost of Capital
Instead of traditional interest rates, MCAs rely on a factor rate to calculate the total repayment amount. While this system allows for rapid funding, it typically comes with a higher overall cost. This makes it important for sellers to weigh the urgency of their need against the expense involved.
Repayment Structure
Repayment for MCAs is tied to a percentage of daily or weekly sales. This setup works well for businesses with fluctuating or seasonal revenue, as payments adjust naturally based on earnings. It’s a repayment model designed with flexibility in mind.
Accessibility
Unlike traditional loans that heavily rely on credit scores, MCAs focus on a business’s current performance. This makes them a more accessible financing option for businesses that might struggle to qualify for conventional loans.
Benefits and Drawbacks
Exploring financing options reveals the unique advantages and challenges of each method, helping businesses make informed decisions.
Comprehensive Comparison
| Feature | Revenue-Based Funding | Traditional Bank Loans | Merchant Cash Advances |
|---|---|---|---|
| Approval Time | 1–3 days | 2–8 weeks | 24–48 hours |
| Credit Requirements | Moderate | High | Low |
| Repayment Structure | Percentage of monthly sales | Fixed monthly payments | Daily or weekly percentage of sales |
| Ideal For | Seasonal businesses and growth initiatives | Long-term investments | Emergency funding needs |
| Typical Terms | 3–12 months | 1–5 years | 3–12 months |
| Collateral Required | No | Yes | No |
Revenue-Based Funding Evaluation
Revenue-based funding stands out for BigCommerce sellers who experience fluctuating sales. Its repayment model adapts to your revenue, providing relief during slower periods. This flexibility makes it especially appealing for businesses with seasonal trends or those in rapid growth phases.
Key benefits:
- Payments scale with sales, easing financial strain during low-revenue months
- No fixed monthly obligations
- Quick approval process
- No need for collateral
Drawbacks to consider:
- Higher overall costs compared to traditional loans
- Requires a consistent sales history to qualify
- Regular revenue sharing may affect cash flow
Traditional Bank Loan Assessment
Traditional bank loans are a solid option for established businesses with stable revenue and strong credit. They offer predictable repayment schedules and lower interest rates, making them a reliable choice for long-term financial planning.
Key benefits:
- Lower interest rates
- Fixed monthly payments for easier budgeting
- Longer repayment terms, ideal for larger investments
- Opportunity to strengthen business credit
Challenges to keep in mind:
- Strict requirements, including high credit scores and collateral
- Lengthy approval process, often taking weeks
- Less flexibility during slower sales periods
Merchant Cash Advance Considerations
Merchant cash advances provide the fastest route to funding, which is invaluable for urgent financial needs. They’re accessible to businesses with lower credit scores and require minimal paperwork. However, the speed and convenience come at a cost.
Key benefits:
- Fast funding, often within 24–48 hours
- Minimal documentation required
- Repayment tied to daily or weekly sales, aligning with revenue
Potential drawbacks:
- Higher overall costs compared to other options
- Frequent repayment deductions can strain cash flow
- Short repayment terms, unsuitable for long-term investments
Choosing the Right Option
Each financing method serves different business needs, so selecting the right one depends on your unique circumstances. Consider factors like your growth stage, sales patterns, credit standing, and whether you need immediate or long-term funding. For example:
- Revenue-based funding is ideal for scaling operations or managing seasonal sales fluctuations.
- Traditional bank loans suit well-established businesses planning significant expansions.
- Merchant cash advances are best for meeting urgent, short-term financial needs.
Aligning your financing choice with your business’s cash flow and growth goals is key to achieving sustainable success.
Key Takeaways
Finding the right financing strategy for your BigCommerce store depends on your business's unique needs and growth stage. Here's a breakdown to help guide your decision-making.
Business Stage Alignment
Early-Stage Businesses:
- Start with funding options that offer revenue-based repayment and smaller amounts.
- Build a solid credit history through consistent financial performance.
- Prioritize solutions that can grow alongside your business.
Growth-Phase Businesses:
- Combine multiple financing strategies to cover inventory and marketing expenses.
- Look for funding options that scale as your business expands.
- Avoid financing that requires personal guarantees.
Established Businesses:
- Use your strong financial track record to negotiate better terms.
- Explore traditional loans for larger-scale expansions.
- Rely on revenue-based financing for managing seasonal inventory needs.
Sales Pattern Considerations
Your sales pattern plays a big role in choosing the right financing model. Here's a quick guide:
| Sales Pattern | Recommended Financing Approach |
|---|---|
| Steady Monthly | Traditional bank loans with fixed monthly payments |
| Seasonal Peaks | Financing options with flexible, adjustable repayments |
| Rapid Growth | Diversified financing to sustain and fuel expansion |
Strategic Decision Framework
When evaluating financing options, keep these factors in mind:
- Cash Flow Effects: Choose funding that aligns with your revenue patterns to avoid cash flow issues.
- Growth Objectives: Match your financing to specific goals, whether that’s inventory, marketing, or scaling operations.
- Time Sensitivity: Consider how quickly you need access to funds.
- Cost Structure: Compare the total cost, including fees and interest rates, to ensure affordability.
As your business evolves, so should your financing strategy. Regularly reviewing your options ensures your approach remains effective and aligned with your goals.
For BigCommerce sellers, Onramp Funds offers a fast, equity-free financing solution. Their revenue-based model adjusts repayments to match your sales performance, helping you manage cash flow and support your growth seamlessly.
FAQs
What should BigCommerce sellers consider when choosing between revenue-based financing, bank loans, and merchant cash advances?
When choosing a financing option for your BigCommerce store, it’s essential to consider factors like cash flow stability, repayment terms, and overall costs.
If your business experiences fluctuating sales, revenue-based financing might be a smart option. Since repayments are tied to a percentage of your revenue, they adjust during slower months, making it easier to manage. Bank loans, however, come with fixed monthly payments and typically require a solid credit history. These are better suited for businesses with steady cash flow. For quick access to funds, merchant cash advances can be appealing, but they often come with higher fees, making them more appropriate for short-term needs rather than long-term plans.
The right choice will depend on your store’s financial health, growth ambitions, and how well you can handle the repayment terms.
How does revenue-based financing support businesses with seasonal sales cycles?
Revenue-based financing provides a repayment model that aligns with your business's sales activity. When sales slow down, payments shrink, giving you some breathing room during tougher times. On the flip side, when sales pick up, payments rise proportionally, matching your increased revenue. This approach helps businesses maintain a consistent cash flow and handle seasonal ups and downs without straining their finances.
What challenges should BigCommerce sellers consider before using merchant cash advances for quick funding?
Merchant cash advances offer quick access to funds, but they come with some challenges that eCommerce sellers need to think through carefully. One major drawback is the high fees and factor rates associated with these advances, which can take a big bite out of your profits over time. Plus, since repayment is tied to a percentage of your daily sales, slower sales periods can put a strain on your cash flow. This could make it harder to handle other essential expenses or invest in growing your business.
Although merchant cash advances might seem like a convenient fix, it's crucial to consider their long-term financial impact. Take the time to explore alternative funding options that might better match your business goals and cash flow requirements.
