Flexible funding is vital to running a successful e-commerce business, whether you’re a start-up or more established in the market. The good news is there’s a range of options open to you that will meet your requirements.
Perhaps seasonal fluctuations mean your funding needs are relatively predictable, in which case you can plan well in advance. On the other hand, the business might need quick access to cash to pay an unexpected bill or buy new stock.
So, what exactly is funding for e-commerce?
What is e-commerce funding?
E-commerce funding refers to financial support available to online retailers. Your business’s needs can differ from those in other industries because of the fast and frequent changes in consumer demand.
Alternative finance products typically address this issue and can allow the business to access finance as circumstances dictate. With this in mind, let’s have a closer look at some of the funding options that might be suitable for your business.
What types of funding are available to e-commerce companies?
Business overdraft
A business overdraft is a line of credit that allows you to withdraw more money than is in your business current account, at a pre-agreed interest rate and up to a set limit. You must make a minimum monthly repayment with this option.
It’s important to arrange an overdraft and agree the terms with your bank before going overdrawn, however, as unarranged overdrafts attract high fees and interest rates. The funds can be used for any business purpose, but this facility is particularly useful for covering unexpected expenses.
Revolving credit
A revolving credit facility works similarly to a bank overdraft in terms of its flexibility but whereas an overdraft is always provided by a bank, other lenders typically offer revolving credit as a funding option.
The facility can be used partially or completely up to a set limit and repaid multiple times within the timespan set by the lender. This may be a good option for purchasing inventory, or perhaps paying additional staff wages during busy trading periods.
Merchant cash advances
Merchant cash advances use the value of your future card sales to provide funding for the business. You receive cash upfront from the lender and then pay back a percentage of the proceeds of your card sales, typically on a daily or weekly basis until the borrowing is repaid. This is also sometimes referred to as revenue-based lending.
A key benefit of funding your e-commerce company using merchant cash advances is that the repayments are proportionate to the amount of sales you make so if card sales are less than expected at any time your repayments are also lower.
Asset finance
Asset-based funding is a great option if your e-commerce company needs to buy a hard asset, such as a piece of machinery or computer equipment, as you can spread the cost of the purchase at a fixed rate.
With hire purchase and leasing options available you can choose whether or not you want to take ownership of the asset when the finance contract is complete. If you make your own goods for your online store, for example, you might ultimately want to own the equipment, in which case a hire purchase agreement could be ideal.
What is the best funding option for your e-commerce company?
When deciding on the best funding option for your business you’ll consider the obvious issues such as how much money you need and how you’ll repay it, but also think about how borrowing that money could change the business for the better.
These forms of alternative funding offer your business vital flexibility and fast access to finance so that you can get ahead of emerging market trends, purchase new stock quickly when necessary, and stand out among your competitors.
Article written by Karl Hodson, UK Business Finance, part of the Begbies Traynor Group. Karl is responsible for helping businesses across the UK raise funding for a variety of purposes such as working capital, expansion and capital equipment. He has specialist knowledge of raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds and Government schemes.
