Ecommerce Seller Financing: Why It Doesn’t Always Work

Ecommerce Seller Financing: Why It Doesn’t Always Work

Traditional Ecommerce Seller Financing Options Haven’t Evolved

Few ecommerce owners have the necessary capital to fund a new and growing business. Ecommerce seller financing options are available, but many often set owners up for failure from the start. 

As your online business grows, you will have to cover more than just inventory; there are marketing and advertising expenses, operating costs, and website optimization overhead, to name a few. 

As you dive into the ecommerce world, you’ll find it can be quite a journey to get financing that works with you and not against you. Why? Because most financing options are stuck in the past, geared towards traditional sales models, and unable to adapt to the needs of online sellers. Fortunately, more modern financing approaches are changing ecommerce seller financing for the better.

What Are the Risks of Online Seller Financing?

The adventure for the startup begins by determining your product, creating an online store, establishing a social media presence, creating impressive product pictures, and posting every day. But growing the business demands much more.

Different challenges may arise, like driving consistent traffic to your website, introducing potential clients to your products and services, and of course, generating conversions, which means sales.

Online platforms charge fees to post your product on their sites, often taking a cut of your sales or a monthly fee, depending on how much you sell. You also have to have just the right amount of inventory on hand: too much, and you’ll see your cash flow dwindle as it sits idle collecting interest; not enough, and you won’t be able to meet customer demand. Not an easy balance.

The biggest risk to ecommerce sellers is running out of cash and inventory. Yes, there are financing options, but traditional options often involve mounds of paperwork and lengthy approval processes - forcing you to wait. Loans, lines of credit and credit cards can charge high interest rates and require monthly minimum payments. What happens if sales go down unexpectedly and you can’t pay? You can get into a hole quickly.

As your business begins to scale, keeping up becomes a constant challenge. We'll help you identify what you need to consider as you take the first steps and the things you should include in your toolkit to start and scale your ecommerce journey.

Cash Flow - Right on Time

Forecasts for 2040 indicate that 95% of all purchases will occur online, so now is the right time for you to venture into this space. Like any other business, you need to have the necessary cash flow to buy inventory, pay staff and cover other business expenses. 

Here are the steps and things to consider as you get your online business off the ground:

1. Acquire knowledge

Take time to research how online selling works, ecommerce seller financing options, and what you can do to set yourself apart. You can find plenty of online resources, such as webinars, classes and in-depth articles. 

Ecommerce is highly competitive, so keeping up with constant changes is vital to progress. Spend time learning about the newest marketplace trends so you can make the best decisions for your business, such as which products to sell, how to market and price them, and how to leverage online reviews.

2. Attract and hire the right people 

Even if you are a one-person shop, It is necessary to partner with the right team, like professional developers for an excellent website, graphic designers, photographers, and content creators for blogs and social media to promote your products and brand.

Since there is an exchange of confidential information in ecommerce, data management must be a priority. 

Install security plugins. Look for those that adapt to the needs of your website to avoid hacks. The image of your company is just as essential as the users who purchase your services and products. 

3. Buy or leverage applications or available tools

There are plenty you can find on the internet depending on your brand's needs or your team goals that will make your life easier. We can mention some like:

  • Shopify; makes it possible for you to sell from anywhere. Besides your own ecommerce store, Shopify; supports third-party marketplaces, social media merchandising and sales in person with Shopify; POS (point of sale) software.
  • WooCommerce has everything you need to add ecommerce capabilities to WordPress. It integrates with popular payment platforms like Stripe, Square, PayPal, Amazon Pay, and more.
  • Shipping Easy helps automate shipping processes if you are doing your own fulfillment.
  • Wix offers a simple website builder.
  • Figma is ideal for designing teams
  • Buffer facilitates social media engagement and aids with follow-up.

Most of the choices offer a free trial before making a purchasing decision.

4. Customer experience

One of the benefits of selling on Amazon, Etsy or other online seller platforms is that you don’t have to worry about the user experience - that’s their job. But if you sell on your own website, the customer or user experience is the key to the success of an ecommerce website, and you need to plan on investing cash into it.

Turning new customers into repeat customers, and repeat customers into loyal customers is an ongoing challenge. Listen to your customers, invest in improvements and continue to evolve to meet their demands and expectations. And don’t forget to keep an eye on the competition. How does your website experience compare?

You may also want to hire additional help. Customer service is critical and a good place to begin, as being responsive to customer requests and issues goes a long way to retain customers. When a potential client visits your website, try to provide customized attention that ensures security and trust. 

5-Price and shipping

Maybe you are wondering how to reduce shipping costs when ecommerce giants like Amazon offer such attractive shipping deals? Buyers have become used to rapid, free shipping, forcing online sellers to seek ways to reduce shipping costs to compete. Amazon has changed the game; two-day shipping is now the expectation.

Even if you sell on Amazon or a similar platform, you will only get reimbursed at their standardized shipping rate. If it costs you more, you’re out of money. If you aren’t selling on Amazon or similar platforms, examine if you can reduce shipping costs with a subscription or a promotion during the month or evaluate a reliable delivery carrier that offers a lower rate for regular shippers.

How Do You Find Ecommerce Seller Financing?

While there are many ecommerce seller financing options available, such as crowdfunding, personal savings, bank loans, and credit products, in this article, we will mention a practical, agile and secure option to obtain funds and pay it back when you sell the product.

Now, before deciding on a financing option, ask yourself these crucial questions.

  • What am I looking to finance?
  • How much do I need and when?
  • What do I need to qualify? 
  • How does it work? 
  • How much will this cost me?
  • How fast do I get the money?
  • What ecommerce expertise can they provide? 
  • What are the true costs?  Are there hidden fees?

If you decide to work with a bank, be ready to provide detailed personal, financial and business information. Putting all of this together can be time-consuming, and even when you do, underwriters often ask for more. Expect to wait 30-60 days before you know if you are approved.

Credit cards provide quick access to cash, but it comes with strings. Many credit cards offer attractive introductory interest rates, but they don’t last. You could be looking at double-digit rates in no time. Credit card companies also require you to pay a monthly minimum, something that isn’t always easy to do if you don’t have cash on hand.

Crowdsourcing can get you cash, but it’s not a reliable or consistent source of funds. It can also take time to accumulate enough to make a dent.

Related: 3 eCommerce Financing Options to Grow Your Business

A More Modern Approach That Aligns with Ecommerce Sellers’ Business Model

One of the most cost-effective ways of getting working capital or ecommerce is through innovative financing models designed specifically for online businesses. They are purpose-built to align with the unique cash flow timings and requirements of the ecommerce industry.

Onramp is a company that focuses on your business interests. Its performance depends on your success, as they collect approximately 1% of the GMV (gross merchandise value). Unlike credit cards or traditional methods, you don’t repay until you sell your inventory, and you don’t actually send a payment. They are connected to your online store and bank for automatic deposits and withdrawals. Hassle-free and on-demand.  

You won't have monthly bills, nor late due payments, varying interest charges, or minimum payment worries; Just the security of knowing the money will be there when you need it.  Ecommerce is turbulent; Onramp provides the cash needed to manage the ups and the downs.

Our Team focuses on being partners with our clients by achieving their dreams and success offering real "one on one" personal service.  At Onramp, you are not just a decision.  We want to join your team, not the other way around. Funding for your Online Marketplace is what we work for. At Onramp we are ready to join your journey. Let's Talk.