Editor's choice: First Down Funding business loans
- No prepayment penalties
- Competitive rates
- Works with bad credit and most industries
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Thanks to an explosion of e-commerce sites, it’s never been easier to make a living selling custom T-shirts. Or whatever strikes your fancy, really. Chances are you’ll need to borrow money from time to time to prepare your inventory for the holiday season — or cover overhead costs when business slows down.
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.
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.
Is my company considered an e-commerce business?
If you sell goods online, you have an e-commerce business. For more information, read our e-commerce 101 guide.
The first step to finding a loan is learning about options available for a unique business like yours.
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.
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.
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.
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 (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.
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.
Compare lenders by entering a few general pieces of information about your business, including how long you’ve been operating, the loan amount you’re looking for and your revenue for the past 12 months. Once everything is selected, click Show loans to get started.
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.
The documents you’ll need vary depending on the lender and type of loan you’re applying for, but you may need to provide:
Yes. Loans are a common way to finance e-commerce businesses, but they aren’t your only option. Here are some alternatives:
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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