All you need to know about funding an e-commerce business
In April 2024, there were 163,278 limited companies registered in the UK that are involved in e-commerce to some degree. The likelihood is that the actual number of businesses involved in this sector could be more than double that when you take into account sole traders and partnerships. That’s a massive market which for a long time has been fairly underserved by the commercial finance industry. Thankfully though, times have changed are there are a number of options available to online sellers.
Traditional loans for funding an e-commerce business
As always, if the affordability is there, then a straightforward loan could be looked at. This could be unsecured (but would probably still carry a personal guarantee), or could be secured on property (which allows a lender to offer better rates, and often take risks they wouldn’t normally take). These loans can be repaid over a few months, or over up to 6 years.
These are a great way of getting immediate cash into a business, but are very inflexible. If you require multiple loans as well, then there is a danger of you becoming over leveraged and damaging your overall cashflow due to servicing so many loans.
Stock finance for funding an e-commerce business
One of the major challenges we see for e-commerce sellers is maintaining sufficient levels of stock to ensure customer orders can be fulfilled immediately. With a stock finance facility, your lender pays your supplier, (and will often pay towards any deposit payments required), as well as paying any VAT, duty and freight costs. The goods are then shipped in and the lender is repaid via your sales. A facility limit is agreed, and you can use the facility multiple times during the year.
When looking at a stock finance facility, many lenders will need to see some trade history between you and your supplier, as well as taking a detailed look at your sales history. Their repayment is through your sales, and so they need to established that the goods they are bringing in will repay them quickly, allowing you to ‘go again’. A typical facility will need each draw down to be repaid in around 90 – 120 days. A finance company will normally insist that stock they have bought in is stored in a third party warehouse, and may carry out their own stock inspections at times.
These facilities are better for businesses that have been trading for at least 12 months, and have built up good relationships with their suppliers and customers.
Specialist lenders for funding an e-commerce business
Recently, we have seen the emergence of lenders specialising in lending to e-commerce sellers. These facilities are generally linked to your sales platform, with repayments often being driven by your sales. Rather than paying a fixed amount each month, instead you pay an agreed percentage of each sale – similar to a merchant cash advance facility.
Generally, you need to have been established for at least 6 months, with the amount you can borrow generally linked to your average monthly turnover.
The good news is that there are a lot of options that can be explored for funding an e-commerce business. If you are a brand new start up (or very early stages), then you will generally need to provide security of some kind, as well as demonstrating a strong CV and background before they will back you. Lenders aren’t looking to support someone’s new side hustle, but instead support businesses that can show affordability and overall security.
As always, the best bet is to speak to your broker and work through how the business is currently performing, what your current issues are, your goals, and what you need to get to the next stage. Your broker can then find the most appropriate lender(s) for you and help you set things up.
Looking for advice on a merchant cash advance? Check out our guide here.
To find out more about how we can help you with funding an e-commerce business, call 07837 812 145 or email sam@lendedgebf.co.uk