The merchant advance and loan are useful tools for any online business. Businesses often have a cash crunch and are in need of money to cover expenses such as payroll, inventory, shipping or marketing.
Lacking sufficient cash isn’t the sign of a failing e-commerce business — far from it. All online businesses are subject to dynamic sales cycles. Inventory and audience reach can be a challenge, and cash is needed.
Smart business owners use credit cards, loans for businesses, and other lending options to overcome challenges. Shopify and Walmart, for example, offer funding to their owners that sell in their marketplaces. There are many different programs, and the better you understand them, your chances of finding the best one for your business will increase.
They all allow businesses to borrow cash for today’s costs by using their assets. This can include future expected sales in some cases. The three options above are described in general, along with some other lending options that you may want to consider.
Shopify Capital
Shopify Capital offers funding to help stores take advantage of their current market position, and accelerate their growth.
In theory, both parties benefit. A store owner can get additional money to help keep their doors opened or to expand their business. This will lead to increased profits over the long term. Shopify, on the other hand, receives funds through a repayment plan and benefits from a store that is more durable and generates revenue through activities, fees, and payment processing.
Not all stores qualify for Shopify Capital. Shopify will send a prequalification message on your Shopify admin dashboard inviting you, if eligible, to explore different funding options. This includes the amount of money you’re qualified for. You can then complete the application for funding once you have received that message.
Although this process is automated, it doesn’t mean that there aren’t any criteria. Shopify Capital has eligibility requirements for receiving funding. If you are curious why you didn’t receive an offer, or why you did get the amount that you received, it is important to fully understand these criteria.
- You must reside in Canada, United Kingdom or United States.
- You must meet minimum sales volume requirements.
- Shopify will only accept stores that are considered low-risk.
They are too vague for many store owners. Store owners who lack clear thresholds, or minimum sales volume to guide them may opt for third-party financing sources or lose their motivation. Even stores who pre-qualify Shopify Capital could receive a reduced offer or even have their funding offer withdrawn.
Amazon Lending
Amazon will lend $2.1 billion in 2022 to independent sellers. Amazon Lending is helping many merchants, both established and aspiring, to grow their business. Amazon Lending is a great resource for sellers who are exclusively on Amazon.
For the best results, merchants should follow a strict routine based on Amazon’s two-week cycle for sales deposits. Although it’s not a deal-breaker for some merchants, they prefer more frequent payments and a greater degree of flexibility when it comes to repayment terms.
Amazon requires that you provide precise forecasts of your future working capital needs for the four quarters. The need for precision requires sophistication when determining how and when much to spend. You may not have enough money to buy Q2 inventory, or take advantage when consumer demand changes.
Amazon Lending, too, is an invite-only service. The approval procedure can also be complex (although it’s less complicated than a bank), and opaque. In a way, the funds can be restricted to only be used by you for your Amazon sales. For those who need to spend significant amounts through Amazon, it’s not an issue. Amazon may also be focused on your Amazon sales, and FBA volume. They might not be able provide capital to support non-Amazon channels.
Sellers can request funds whenever they need them (subject credit approval), which allows them to quickly fund their operations, build inventory and take advantage of new business opportunities. Amazon Lending is only available to businesses who have been invited. Amazon has a variety of lending options. Each one comes with its own fee structure and rates that can be very different.
Walmart Marketplace Capital
Walmart Marketplace Capital gives qualified Walmart Marketplace sellers an offer of a cash-advance based on their Walmart Marketplace Sales.
Walmart Marketplace Capital can be used for three main purposes: marketing, enrollment in Walmart’s fulfilment plans, or expanding your product catalogue. Eligibility is determined by:
- History of Marketplace sales. (Must have been selling on the Marketplace for atleast six months).
- Walmart Marketplace: Sales Volume
- Business Risk Profile
- Walmart Marketplace Seller Performance Standards
- It must be a U.S. based business
- Only sole proprietors can receive offers
Walmart Marketplace Capital offers can be accepted by an ecommerce business directly through the Seller Center. The funds are transferred via your payment processor, (Payoneer or hyperwallet), by ACH the same day or next day.
When the offer is made, the baseline payment amount will be calculated based on historical sales. Walmart automatically collects the amount from each settlement cycle. Walmart may debit a seller’s account if there are insufficient funds on the settlement account.
A flat fee is charged to eligible businesses as a fixed percentage of the advance amount. The flat fee remains the same throughout the payment period. The fee is part of the total payment and is paid in regular installments.
Walmart Marketplace Capital is a program that has many positive aspects, but also some negatives.
- Terms of repayment are relatively rigid: The repayments will be automatically deducted from the sales you make on your marketplace. This could lead to cash-flow problems during slow sales periods.
- Walmart Marketplace only: If you are not a Walmart Marketplace seller, or if your business is based in the United States, then you’re not eligible.
Conventional business loans
Bank, credit unions, and commercial lenders can provide a good source of capital for businesses that are already established. E-commerce companies often do not meet the bank’s criteria for brick-and mortar businesses.
Conventional loans are less useful for online business owners, even if they have a thriving business. It can take several weeks for business loans to be processed and approved. Some may have high fees and rates of interest. The average rate for a term loan is between 10% and 45%.
Business Credit Cards
E-commerce owners can use credit cards for almost any expense. They are a flexible option for cash infusions that last a short time. The APR of many business credit cards ranges from 18% up to 29%. This can be risky for small businesses.
A bad credit score can also affect a company’s future ability to obtain funding and loans. The average small business credit card has an APR of around 25%.
Cash-Injection Aligned Lending Programs
E-commerce companies can also benefit from lending programs that match cash injections to the amount required to cover immediate expenses. Fintech tools from third parties are often integrated into these programs, which detect real-time needs for cash flow and adjust accordingly.
The system will automatically transfer funds to your account, so that you get cash infusions in sync with your sales receipts. These programs are scalable and do not rely on lump-sum payments based on estimates of revenue over the medium term. The loans are usually approved within an hour or less and the repayment schedule is based on sales volume.
The article above does not cover all details about each of the lending options. This information is useful to begin the process of finding funding or a better alternative. You need to do your research and find the best fit for your business.
Consider terms that are affordable, fast approval and platform management that is streamlined. Knowing the requirements, mechanics and repayment terms of a funding source will help you choose the best tools for your ecommerce company.
