Ecommerce Funding

Ecommerce is booming, but with increased competition, it’s harder than ever to make your business stand out. To grow and get your product on more doorsteps, you’ll need to invest in marketing, hire a skilled team, and purchase enough inventory to meet demand.

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That’s where ecommerce funding comes in. But before jumping into any agreements, it’s important to understand your options. Here’s a comprehensive look at popular ecommerce funding models and how they can work for your business.

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What is Ecommerce Funding?

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Ecommerce funding provides online retailers with the capital they need to start or expand their business. This money can come from various sources, including banks, angel investors, government grants, or even the public through crowdfunding.

The right funding model for you will depend on your business’s growth stage and your expansion plans. Some forms of funding require repayment, others may take equity, and each has different conditions.

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How Does Ecommerce Funding Work?

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Each funding model comes with different terms, such as whether or not you need to repay the money, if interest is involved, and whether you’ll need to give up equity. Some options, like revenue-based financing, require you to repay over time, while others, like crowdfunding, may ask for shares in your business.

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To help you understand which is best, let’s explore the ten most popular funding options for ecommerce businesses.

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1. Revenue-Based Funding (Flat Fee)

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Revenue-based funding is a flexible and straightforward option, especially for ecommerce businesses. In the "flat fee" model, you pay a fixed percentage of your revenue over time, typically for a term lasting up to 5 years. You’ll generally repay 1-3% of your monthly turnover, which provides the advantage of lower monthly payments compared to the variable collection model.

However, this comes with a trade-off: if your business grows rapidly, you could end up paying much more in the long run.

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2. Lines of Credit

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Lines of credit are popular among ecommerce businesses as they offer flexibility. Similar to a credit card, a line of credit gives you a pre-approved limit that you can draw down as needed. You only pay interest on the amount you use.

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For instance, if you need to buy a large stock order to capitalise on a supplier’s discount, a line of credit allows you to make the purchase and pay it off as you sell the inventory.

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Advantages:

• Interest is charged only on the amount used

• Flexible spending, not restricted to inventory purchases

• Low interest rates

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Disadvantages:

• Can be difficult to secure without at least two years of trading history

• Limits may be low for newer businesses

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3. Merchant Cash Advance

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A merchant cash advance is ideal for businesses with regular credit and debit card transactions, such as hospitality or retail. Lenders advance you up to 6 months’ worth of card turnover, which you repay daily through a percentage of your future sales.

While quick and easy to obtain, merchant cash advances can be expensive, with fees often reaching 30-40% of the loan amount.

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4. Bank Overdraft

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Overdrafts provide a simple way to help with short-term cash flow problems. If you’ve been with your bank for at least six months, you may be able to access an overdraft facility linked to your business account.

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Advantages:

• Quick to set up and useful for small cash flow issues

• You can borrow exactly what you need

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Disadvantages:

• Overdrafts can be withdrawn at any time at the bank’s discretion

• Limits are typically capped at 1.5 to 2 months’ turnover, usually no more than £25,000

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5. Crowdfunding

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Crowdfunding is a great way to raise capital, especially for start-ups or early-stage businesses. Using platforms like Kickstarter or Indiegogo, you can attract small investors by offering rewards or shares in your company.

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Crowdfunding also raises awareness of your brand and business, but it can be highly competitive and requires a well-planned campaign to succeed.

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6. Invoice Factoring

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Invoice factoring is useful for ecommerce businesses that sell through third-party platforms, which often delay payments for 30-60 days. By factoring your invoices, you can receive up to 90% of the value of your sales the next day, keeping your cash flow stable.

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However, invoice factoring can eat into your profits, as you’ll pay fees to the factorer for their services.

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7. Equity Financing

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Equity financing involves giving up a portion of your business in exchange for capital. While it may seem like a large concession, equity investors bring more than just money. They often provide valuable expertise and access to a broader network of industry professionals, helping to grow your business exponentially.

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The downside? You’ll lose some control over your company as investors may install their own people on your board over time.

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8. Asset-Based Lending

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If your ecommerce business involves manufacturing or requires specialised equipment, asset-based lending is a great way to finance machinery and tools without paying upfront. You make monthly payments towards the equipment, and some lenders offer the option to upgrade your equipment after a certain period.

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However, you never own the equipment outright, and if you can’t make payments, it can be repossessed.

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9. Grants

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Government grants provide free money for your business, but they are often small and difficult to secure. Many are highly specialised, so your business needs to fit a specific niche. Still, the advantage is clear—you never have to repay the funds or give up control over your company.

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10. Bank Loans

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Traditional bank loans can offer low-interest rates and flexibility in how you use the funds. However, banks are risk-averse and may be hesitant to lend to ecommerce start-ups or companies with limited trading history.

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If you’re seeking more than £25,000, the process becomes even more complicated, often requiring business plans, forecasts, and personal assets as security.

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Which Ecommerce Funding Solution is Right for You?

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Choosing the right funding option for your ecommerce business depends on several factors, including:

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• How much you need to borrow

• How the funds will add value to your business

• How you plan to repay the money (if applicable)

• Whether you’re willing to give up equity or control

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Revenue-Based Financing from Monetae

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At Monetae, we believe revenue-based funding is one of the best options for scaling your ecommerce business without giving up control or paying high interest. We offer funding from £100,000 to £10 million within 24 hours, which you can use for advertising, inventory, or hiring.

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See if you qualify for Monetae's flexible funding solutions today.