Ecommerce businesses have an 80% failure rate.
There, we got that out of the way. That may seem like a dismal point to start on, but rest assured, there’s a positive side. The majority of these failures are entirely preventable. Now, that’s not the best news for those who are part of the statistic, but it’s excellent news for you. They say those who don’t learn from the past are doomed to repeat it, and we’re here to help you prepare yourself - and your business - to become a success story.
Money can’t solve all of your problems, that much is true. But in the unique and dynamic world of eCommerce, having funds available to invest in the right places can help you stand out in a saturated market. If you’re not sitting on a pile of cash, don’t worry. We’ll cover some of the best financing options for online businesses so you can maximize your opportunities.
Financing Options for Online Businesses
There are several financing options available for online businesses. While cash is a mainstay in any small business, it is vital for eCommerce merchants. Without cash to cover things like inventory and marketing outreach, it’s incredibly difficult to find your foothold in such a crowded market.
Choosing the best financing options for online business objectives is your key to receiving and leveraging funding to its fullest potential.
Diversity Is Key
When we say that choosing the right options is key, that doesn’t mean choosing just one from the pack. Your capital stack will benefit from diversity in funding options. Different financing options for online businesses suit various purposes with an assortment of approaches, terms, and interest rates.
Longer-term loans suit more significant investments such as real estate or machinery. Mid-term loans are better for things like inventory or marketing expenses. Short-term loans can help you in a pinch when you need to cover day-to-day business expenses. That’s a high-level look at different loan types, and there are, of course, other factors involved, such as interest rates and repayment plans.
Traditional Business Financing
While traditional financing options were designed long before eCommerce came into the picture, some beneficial options still suit online businesses. Not all have terms that will be ideal for the ebbs and flows of the eCommerce world, but they’re worth looking at when you need to boost your cash flow.
Term loans avail cash to businesses with a specific amount in mind for a project or goal. You get a single lump sum with a specified repayment period and fixed financing terms when you receive a term loan.
Online loan repayment terms are typically 6 to 24 months, while bank term loans are longer, anywhere from 2 to 25 years. Repayment terms vary and depend on the amount of cash you take and how you intend to use it. You will also have the option of a term loan with fixed or variable interest rates.
To apply for a term loan, you will need to submit detailed financial history documents, personal paperwork and wait two to three months for approval. For that reason, it’s advantageous to collect your documents and submit an application early in the planning phase of your project, as it will take time to receive approval and your funds.
Short-term loans can be a good option if you need to receive money fast. These loans are for smaller amounts with shorter repayment times. While you may find cash is available to you more quickly, it will cost you - short-term loans tend to have higher interest rates. It’s not the best financing option for online business in all cases, but when you need a little boost, and you need it quickly, short-term loans may be the answer.
Lines of Credit
If you need a flexible lending option, a line of credit may be for you. There are no restrictions on how you use the cash you receive from a line of credit, though there are strict terms to adhere to. Your repayment is due in a monthly installment, which will result in penalty charges if not met.
This financing option for online businesses allows you to draw from an overall amount. For example, following approval for $10,000, you don’t need to take it all at once. You can draw from this line as you need it and repay what you’ve taken to avail yourself more credit.
While there is freedom in how you spend the money, you will need a bit of patience when submitting your application. Lines of credit tend to take two to three months to receive approval. Lenders require lengthy reports of your financial history and personal documents as part of the screening process.
Business credit cards have a more straightforward application process than the above financing options for online businesses. You’ll be able to spend as you please, giving you the freedom that traditionally comes with credit cards. For their ease of approval and use, credit cards are one of the best financing options for online businesses. That said, they can be expensive, and repayments can be burdensome.
Credit cards are great for building business credit, which can help you with other financial assistance requests. As is the case with your personal cards, business cards require minimum monthly payments and have interest rates that increase after the first year.
Non-traditional Funding Options
The above lending options are available to you when you need some help building your capital stack. Each has its niche purpose amongst your business expenses and can help you when you’re either in a pinch or planning a big project.
However, these options don’t take the nature of eCommerce into account. Traditional financing follows a traditional rulebook which means regular monthly payments, high interest rates, and at times, high barriers to receiving approval.
Thankfully there are non-traditional funding options available as well. While many avenues are open to you, the best financing option for online business is one designed with eCommerce in mind.
These non-traditional lending options have a much more straightforward application process and don’t require lengthy financial history reports or risky collateral to receive approval. Once approved, you will receive cash in days rather than weeks or months, allowing you to reinvest quickly and strategically into your business.
Non-traditional funding is best used for inventory or marketing purposes, allowing you to have stock on hand and get the word out to current and prospective customers. The repayment for eCommerce lending takes the ebbs and flows of your sales cycle into account. Rather than requiring minimum monthly payments with the threat of late penalties, you repay as you sell through your inventory. A percentage of each sale is diverted to your balance.
Financing for eCommerce
Thankfully, with all of the lending options available, there is one designed with your business in mind. Onramp can get you the working capital you need to help your business grow. Contact us, get cash quickly, and have a finance partner on your side. We’re more than just a source of extra funds. Started by entrepreneurs for entrepreneurs, we have decades of experience to share with you.