What To Look For When Choosing A Financing Solution For Your E-Commerce Business

eCommerce businesses are capable of rapid growth. During 2020 and 2021, online marketplaces were booming with internet success. Now that you are looking to grow and expand your eCommerce business, there are a few factors to consider before choosing a financing solution.

  1. Types of Lending
  2. Room for Growth
  3. Rates and Fees
  4. Collateral
  5. Shares and Ownership

Below, we’ll talk more in depth about each of these factors and how different financing options can affect your business. 


1. Types of Lending

From drawing money out of personal savings to borrowing from a creditor or financial institution, you have lots of options for financing your eCommerce business. However, there are a few loans specific to eCommerce business funding that are usually fast, flexible, and short term. 

  • Inventory Line of Credit – This is usually set up with a manufacturer or supplier. You receive the goods on credit, up to the predetermined limit, and pay back in daily, weekly, or monthly installments (depending on the terms established at the start of the loan). As you pay back the loan, more inventory credit is made available to you. 
  • Invoice Financing – You sell a portion of your uncollected invoices to a factoring company at a discount. They give you the funding and collect on the invoices themselves. 
  • Invoice Factoring – Slightly different from invoice financing, factoring is a set amount lended and a set amount paid back (usually 1.1 – 1.9% of the amount lended). The factoring rate does not change and there is no interest collected on the loan. 
  • Revenue Based Financing –  You receive the funding and pay back a percentage of your monthly revenue. This is a great flexible option for businesses that do not want a fixed payment every month. You never pay more than you make during the span of the loan. 
  • Merchant Cash Advance (MCA) – MCAs allow for daily repayment based on a percentage of your daily credit/debit card and online payments. This is for sellers that receive a majority of their payments through debit/credit cards and online payments. 
  • Venture Capital – Investment firms (or private investors, called angel investors) give you capital to fund your business. In exchange, you surrender partial ownership of your company. 

2.  Room for Growth

It’s not enough to just take out a loan, receive the money, and pay it back without the added security of growth and expansion. Achieving rapid growth is difficult when your bank or online lender puts a limit on your capital. 

Companies like 8fig not only allow for growth, but promote it. 8fig is a play on 8-figure – meaning, they want to help you rake in the big bucks. Having access to nearly unlimited capital allows you to continue making business decisions without the time spent worrying about cash flow. 

8fig, itself, offers its Growth Plan to sellers who meet the following criteria:

  • Have an Amazon, eBay, Shopify, Walmart, or Wix store,
  • Have an established business (6+ months of sales history), and
  • Have annual revenue of $100,001+

You want a financial company that understands your eCommerce needs. Brick and mortar retailers may not face the exact same challenges as an eCommerce business. 8fig’s analytics help you break down your supply chain, find bottlenecks in your cash flow, and generate revenue. Their plan is to make access to capital the least of your worries. 


3. Rates and Fees

Here’s something sneaky that less-than-desirable lenders will try to catch you up on – hidden rates and fees. 

Now, you should expect some compensation for their service including interest rates and processing fees. But ultimately, all of these extra costs should be outlined prior to accepting the offer. 

Be cautious of: 

  • Transactional fees (such as anytime you make or receive a payment, use an ATM)
  • Cash advance fees (such as drawing cash from a credit card) 
  • Early pay-off fees (the lender wants to collect on the interest for the length of the term, so they charge a prepayment fee). 
  • Service fees (fees that exist simply because you have a loan with a balance each month). 
  • Variable rates (you start out at a low interest rate and the percentage changes after a period of time)

Many of these examples are likely to appear when you apply and use a credit card, but they can be standard in some loan agreements. 

Bottom line: read the agreement carefully and research lenders/funding companies that have low, or no, extra fees. 


4. Collateral

Collateral is the assets you have on hand or in equity to guarantee you will pay the loan back. Many lenders will ask for collateral. When someone purchases a car but doesn’t make the payments, the car is repossessed. It’s the same thing with inventory – if you take out the loan to procure products or equipment but don’t pay it back, the inventory or equipment might be your collateral. 

Here’s where you need to watch out. Some lenders and banks will ask you to put up personal assets as collateral. Personal assets are things like your house, car, retirement plan, or personal bank accounts. Be wary of these lenders. You have every intention of paying your debt, but if there is a compromised situation, you do not want to lose your home or transportation in the process. 

Using personal assets as collateral makes sense for some businesses who don’t have as many assets or equity. These decisions should not be taken lightly. Additionally, with as many eCommerce funding options as there are, chances are, there is a better option for you. 


5. Shares and Ownership

Funding options, such as venture capital, require dilution of ownership – selling shares or a percentage of your company in order to receive funding. Many business owners prefer to retain control, and decide to pursue options that don’t give decision making power to anyone else. 

However, venture capital isn’t without its merits. Venture capitalists and angel investors have the potential to bring experience and networking connections to the table. After all, they own a stake in the company and do not want to lose money by watching it fail. 

Selling shares or part of your company means you now need to factor in what will make the lender money. Some business people like the idea of bringing on someone who is invested in their business because they can help reduce the burden of decision making. On the other hand, others do not want to relinquish control because they already have a set plan. 

It’s important to consider all of the pros and cons of dilution of ownership and review the terms of the agreement to find what works best for you.  


At the end of the day, the burden can be heavy on you to ensure you are finding the right solution for your business’s financing needs. Thankfully, there are lenders, like 8fig, who want to see you thrive and grow. Be sure to research the types of loans available, have a plan to expand or grow your business, evaluate the differences between rates and terms of the loan, establish what you are willing to use as collateral, and consider the risk versus benefit of diluting ownership.

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