Compare e-commerce business loans

Financing options run the full span of what you’d expect for other types of small businesses — but what’s best for your digital store will depend on its overall finances.

How do e-commerce business loans work?

An e-commerce loan is a type of financing for small online retailers. It’s very similar to a business loan in that it’s money you borrow and repay with interest and fees. However, there are some financing options that only work for businesses that make money by selling goods online — such as Clearbanc or Kickpay.

What kinds of loans are available to e-commerce businesses?

The first step to finding a loan is learning about options available for a unique business like yours.

Term business loans

• Covers one-time expenses like new equipment or more inventory.

One of the most straightforward ways to finance your online business is to take out a term business loan. Borrowers with good to excellent personal credit — typically 670 or higher — will usually find rates from 6% to the midteens, which makes it less expensive than other types of financing, like credit cards.

Amounts are typically larger and start around $5,000, which makes them better for large one-off purchases. If you’re ready to up your online selling with new equipment, a redesigned website and more stock, a term loan might be the way to go.

Business lines of credit

• Keeps things running during the off season by using what you need, when you need it.

A line of credit can act like a hybrid between a loan and a credit card. Your e-commerce business gets approved for up to a certain amount and you can draw up to that amount — only paying interest on what you draw. Depending on the type of line, you may pay it off in equal installments like a loan or just have minimum monthly payments to make.

Once you’ve paid back the loan, you can draw from it again. This can make it useful for covering expenses that crop up when inventory isn’t moving as quickly.

Microloans

• A small loan that funds small projects that don’t need much capital.

Starting amounts for microloans can be as low as $25 and run up to $50,000 depending on the lender. E-commerce businesses looking to do small modifications to operations or fund smaller projects may benefit from a microloan. Sometimes just upping your packaging is enough to snag repeat customers, and a microloan could help fund that.

Peer-to-peer business loans

• Get funding from investors interested in your business through peer-to-peer marketplaces.

A peer-to-peer (P2P) marketplace will allow you to get funding from investors without giving up part of your business. Typically amounts are between microloans and standard term loans, which means you can fund medium to large projects.

Plus P2P business loans typically have the advantage of more lenient credit requirements than traditional term business loans. This allows you to fund your e-commerce business even if you don’t have a lengthy business history or the highest annual revenue.

Small Business Administration loans

• Find lower rates with a government-backed loan designed to help businesses that don’t qualify for other financing.

Small Business Administration (SBA) loans can come in handy when your e-commerce business needs funding — but doesn’t need it in a hurry. As with most government programs, SBA loans take time. And while an online term loan might be able to deliver funds within a business day of approval, SBA loans can take weeks or even months to hit your account.

But the credit requirements for an SBA loan are much more relaxed than that of most business term loans because they come with government backing. Just make sure your online business meets the other requirements before starting the lengthy application process.

Business cash advances

• Also known as merchant cash advances, these provide funds based on your sales for a set fee or a percentage of your sales.

More often than not, business cash advances come with the advantage of not requiring a credit check. Instead, these lenders rely on your sales information to make a decision on your application.

Amounts are typically on the lower side, so they’re best for smaller costs. But be careful, this type of financing can cost more than others, and may come with daily or weekly repayments.

Two benefits competitive e-commerce business loans will offer

• Favorable terms. Decide if your business needs money up front with a fixed term or more flexible access through a line of credit. A line of credit is helpful for businesses that anticipate a dip in sales at specific times of year. For one-time larger expenses, consider a fixed-term loan.
• Low costs. Lenders look at how much you want to borrow, your desired repayment term and your business’s financial history to determine your interest rate. Before you apply, get quotes from at least three lenders, and look at any origination, prepayment and application fees — which are often included in the APR.

How to qualify for an e-commerce business loan

What you need to qualify for an e-commerce business loan will vary based on what type of financing you’re applying for. A merchant cash advance likely won’t consider your credit score, but will require a certain annual revenue — while a term business loan will typically come with strict credit and revenue requirements.

Each lender will have its own requirements, too. It’s best to thoroughly look into the eligibility criteria for a business loan provider before applying. Doing so can save you time and possibly keep an unnecessary inquiry off your credit report.

Have key information about you and your business on hand when researching, including your annual revenue, personal credit score and time in business. You’ll be able to quickly tell whether applying with a lender makes sense based on how your stats match up with its requirements.

What do I need to apply?

The documents you’ll need vary depending on the lender and type of loan you’re applying for, but you may need to provide:

• Your business’s financial records including monthly revenue and expenses
• A business plan that details your strategy for growth
• Your personal information including contact details and business ownership verification

Four tips for getting an e-commerce business loan

1. Wait until you’re really ready. If you’re just starting out, avoid high interest rates and predatory fees by looking at other types of financing like crowdfunding and borrowing from people you know.
2. Have a killer business plan. Not only will a great business plan help you get the most from your loan, but it can also help you focus on your goals.
3. Know your cash flow. Finding the right loan for your business can be difficult if you don’t know how you’re going to pay it off. Go over the numbers, and take note of any patterns in your profits.
4. Boost your credit score. You can score a better deal on rates and fees — and potentially borrow more — by taking steps to improve your credit score.

Are there other ways to fund my e-commerce business?

Yes. Loans are a common way to finance e-commerce businesses, but they aren’t your only option. Here are some alternatives:

• Investors. Get funding in exchange for ownership of a percentage of your business from venture capitalists, angel investors or investment corporations.
• Crowdfunding. Set up a page on a crowdfunding campaign to collect donations from your social circle and business’s fans.
• Friends or family. You probably won’t have to pay interest or fees when borrowing money from a wealthy acquaintance or relative — but you risk serious social consequences if you can’t pay them back.
• Personal loans. Consider taking out a personal loan to fund a fledgling business that doesn’t meet the age or revenue requirements for a business loan. Just make sure the funds can be used for business purposes before you apply.

Bottom line

Finding the right loan could make or break your online business. You could find that you’re eligible for options you might not have considered. If you’d like to explore even more types of financing options, you can compare a full range of business loans in our detailed guide. And be sure to read the fine print before settling on any lender

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