E-Commerce Seller's Guide to Financing

Amazon FBA sellers, Shopify storefronts, and other e-commerce businesses have experienced a surge of growth over the past several years. In fact, the April 2021 Adobe Digital Economy Index Report indicates global e-commerce spending will eclipse $4.2 trillion in 2021 and it is already showing a 39% YoY growth in Q1 2021. It also reported that US consumers spent $78 billion in March 2021 alone.

Year over Year E-commerce spending growthAll this growth in e-commerce drives the need for financing to support inventory needs and business operations. Online lenders don't want you to believe that banks will finance your e-commerce business. Commonly, online lenders will charge higher fees and higher rates to use their online lending programs in comparison to local banks. We can attest that banks will finance thriving e-commerce businesses with a variety of small business loans. We've learned over the years to underwrite the cash flows and opportunities of our customers. Online businesses are not much different. Banks are focused on meeting your business at the point of the cycle it is experiencing.

What is e-commerce financing?

E-Commerce financing provides working capital so that you can acquire the inventory, pay staff, and cover other operating expenses for your e-commerce business. The types of loans are not much different from traditional retailers with exception that instead of having a brick and mortar store, your store lives on the internet.

Online sales growth is here to stay

The pandemic has changed our lives in many ways. It has also changed the amount of liquidity in the banking system and the way businesses and consumers purchase goods. Good bankers understand and are moving towards better platforms to answer the question of how to get a loan for your online business.

We have seen small businesses and individuals create careers and shops entirely on Instagram whether through Instagram shopping or through influencing their specific marketplace.  We've seen established small businesses pivot to selling nearly all their goods and services online. A bank and a banker’s job is to provide funding so that you can consistently and prudently grow your business by having the necessary funds to meet your demand. There is risk in lending money and that is why banks have a variety of small business loan options.

online business loan applicationWhat types of small business loans are available for an e-commerce business?

The primary types of business loans are revolving lines of credit, inventory loans, equipment loans, and SBA loans (includes all the prior variations.)

A revolving line of credit allows for the business owner to advance, paydown, and re-advance principal balances from the line. It works well for inventory management when there are seasonal cycles in the business operation. The line of credit will allow you to buy the inventory to send to Amazon FBA and then as sales occur, the proceeds will be used to reduce the line until the next cycle starts again.

A term loan (equipment or inventory loan) is a full advance of the principal amount of the loan with regular principal and interest payments required over the life of the loan. This is common with the merchant advances provided by online lenders. The advantage in working with a bank is that it provides some additional flexibility in term, rate, and repayment. A merchant advance often comes out of your sales, and if borrowing from Amazon Lending, often also comes with covenants tied directly to your Amazon sales activity.

An SBA loan was built to help small businesses get loans and can be a great option for your growing e-commerce business. The government guaranty reduces the bank’s risk and provides greater opportunity for loan approval. Common types of SBA loans:

The SBA loan options for your MN small business loan will be driven by the purpose. However, both operating lines of credit and term loans are available under the SBA loan programs. The government does set maximum interest rates on the loan offerings. Your banker is prepared to share what these rates are and provide additional information on the qualifications. It is important to note that an SBA loan approval will take slightly longer to complete as the loan request does require additional underwriting to get SBA approval on the guaranty. Don’t be alarmed though as the bank will work quickly and is experienced in processing these loan requests.

Business credit cards can also be used to fund your business operations on a temporary basis. Another form of line of credit, one where the payment is due monthly or interest will accrue, it provides short term flexibility to manage expenses that are time sensitive. Consider the options and remember that often it is the most expensive and provides the least amount of funds in financing your business.

Organization drives better loan opportunities

There is a misconception about bank financing. Towers of paperwork and lots of time. Organization for all businesses, including e-commerce businesses, drives the process and the speed to which a loan file will get reviewed and closed.

As you consider your lending options for your inventory loans, it helps to coordinate a plan and organize your business information. Amazon Lending Services has access to your entire sales history, inventory, reviews, and returns through Seller Central. If your are also Amazon FBA, they also have access to your restocking schedules and direct access to your inventory.

In applying for a bank loan, the organization around the same information is valuable. It provides information to assess the risk of your business. An organized application demonstrates that you have a plan, you know your numbers, and that you will execute successfully. A quick list to prepare:

  • 12 months Online sales history
  • Break-Down of Online Product Offerings and Sales Leaders
  • Unit Profitability Report for any new lines you may be funding
  • Leadership Team
  • Up to Three Year’s Tax Returns
  • Personal Financial Statement

For a more comprehensive list, see Flagship Bank’s Commercial Loan Applicant Checklist

Why consider a local bank for your e-commerce business?

The challenges of a small business owner are never easy. We know that and we have been dealing with small business owners since our founding in 1875. Our goal is to provide great service, flexibility with reliability and certainty for our customers. Local banks are built on relationships. This means if you have a business opportunity, you have one hand to shake to get business done.

The additional advantages are we want to learn our customer’s business, its process, and its earnings history.

Our interest rates are generally lower than online lending companies because our funding base is FDIC insured customer deposits and we use government guaranteed loans when the business can’t quite support the loan request on their own.

Lastly, you can grow with us. We have the ability to lend larger amounts as your business grows. It is a business relationship with mutual respect and support.Talk with a banker


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