Best E-Commerce Business Loans

Your costs will vary depending on whether you’re dropshipping, reselling, or manufacturing products from raw materials, and whether you’re hiring staff. But every ecommerce business needs to spend money on marketing, as well as operating costs such as legal fees and accounting. And existing ecommerce businesses often need funding to grow or expand. That’s why 37% of small businesses sought funding in 2020. Our experts reviewed and ranked the best ecommerce lenders for every type of small business need, so you can get the funding that’s best for you.

How to Choose the Best E-Commerce Business Loans

When comparing your options for funding, it’s important to consider the following factors, which our experts used to evaluate and rank ecommerce lenders.

• Loan Features: Make sure the loan terms meet your needs and that the repayment schedule is feasible for you. Also pay attention to the amounts offered, and try not to borrow more than you need.
• Application Process: Evaluate the ease of the application process and how long it will take to get funding for your e-commerce business. Check to see if you can prequalify or if the lender requires a hard credit check.
• Interest Rates and Fees: Aim for the lowest APR and the fewest fees you can qualify for based on your creditworthiness.
• Qualification Process: Look at the credit score requirements for your business and personal credit score and check the annual revenue and business history requirements to make sure you qualify before applying.
• Online User Reviews: Check sites like Trustpilot for independent customer reviews of the lender you are considering, and make sure that the quality of their customer service meets your expectations.
• Perks and Bonuses: Consider things like savings opportunities and payment flexibility. Some lenders have unique offerings in this area. If you prefer mobile payments, make sure the lender has the technology you need. And ensure the lender maintains an accurate, transparent website.

Best E-Commerce Business Loans for 2022

Best Ecommerce Business Loans — Features Comparison

Why Do you Need an E-Commerce Business Loan?

Running an e-commerce business can be costly, let's break down possible e-commerce business expenses:

• E-Commerce website ($5,000 to $10,000): Sure, you can DIY your e-commerce website using the simple tools offered on the market, but if you intend to go big, you will need to set a good basis for possible expansion. Ensure the website has all the attributes you need now, and consider the features you will need in the future, including excellent CRM software.
• The domain name ($2 - $20 per year): This is the most overlooked recurring payment.
• Hosting (at least $100 per month): You might think that a shared hosting of, say, $20 is a good idea money-wise. However, you're working with customers’ details, and as such hosting security can be a considerable risk. Invest in a decent service and protect your customers.
• Staff ($200,000): It's easy to get overwhelmed by all the different hats you will have to wear as an e-commerce business owner. Plus, fast growth is one of the defining properties of a successful online business. You need to plan for fast growth so that you won’t be caught off-guard if this does in fact happen.
1. Web developer ($53,000): Professionally made websites need professional maintenance, so you'll have to keep a contractor on hand to fix bugs.
2. E-commerce manager ($59,000): Once your business takes off, you'll have to hand over the day-to-day tasks to a manager so that you can focus on other aspects of your business.
3. Director of e-commerce ($100,000): Although hiring for this position is probably far down the line, it's good to include this expense in your plan.
• Insurance and fees (local rates): You'll have to research this well, as each state and city may have different rules regarding e-commerce business operations and permits.
• Payment processor (variable): You should make sure that the payment service you use to receive funds from your customers is secure, fast and straightforward.
• Marketing (variable): Each additional marketing channel means an added cost. However, marketing is essential to the success of any e-commerce business. You may wish to think about hiring a dedicated marketing team. Later, your business may benefit from a content production team (quality photos, videos, and blogs are crucial to online success).

How Does E-Commerce Financing Work?

Like any loan, the financial lender delivers an agreed-upon amount of capital to a qualified e-commerce company and charges interest and service fees to the borrowing company. Under the terms of the loan contract, the borrower repays the lender on a fixed basis (usually every 15 or 30 days) until the loan is fully repaid.

Before delivering the loan, the lender will vet the business and financial credentials of the e-commerce e-company, via a risk analysis process that focuses on business revenues, credit health, cash flow, and loan repayment history, among other factors.

Once the financial institution green-lights the loan, an automated system is established that delivers the funds to the e-commerce company and, in return, allows the borrower to repay the loan on the specified dates via electronic bank payment.

How to Qualify for E-Commerce Financing?

While lenders will generally review common loan criteria like credit scores, cash flow, and repayment history, e-commerce companies seeking financing should be prepared to expect a full financial review from lenders who may use differing qualification factors.

The best path forward for e-commerce company borrowers is to fully review all business credit reports and, if necessary, consumer credit reports, and make sure those reports show a borrower in good financial standing.

The stronger the credit report, the better an e-commerce company’s chances of landing financing at the desired level. E-commerce company borrower should also be prepared to answer questions on how long the company has been in business, sales revenues, debt-to-capital income ratios, any tax records, business plans, and other company financial documents.

If that documentation is in order and demonstrates the borrower is a good steward of the company’s finance, that also boosts the odds of the business qualifying for e-commerce financing.

How To Apply For E-Commerce Business Loan?

In general, e-commerce financing is available through traditional finance lenders like banks, credit unions, angel and venture capital investors, peer-to-peer lenders, and through government agencies like the U.S. Small Business Administration.

Once the best lender is identified, the e-commerce company should have the proper loan documentation prepared, including:

• Bank and tax records
• Accurate credit reports
• Company financial statements
• Personal financial records and credit reports, if the borrower is taking out financing in his or her name, and not the company’s name.

The lender will provide a loan/financing application that the e-commerce company needs to complete accurately and thoroughly. That’s important, as any missing or incorrect application information may be enough to have the financing request rejected.

Expect the application to include requests for business and personal information, like name, address, phone number, email address, banking partner, credit information and, if needed banking and tax information dating back two years. The e-commerce company may also be asked to include company financial information lie annual revenues, balance sheets, profit and loss statements, and existing debts, along with any relevant business permit or articles of corporation.

Once the application is complete, the e-commerce company submits the application to the financing company, which will review it. It’s not uncommon for lenders to reply with questions or request more information to better vet the loan application.

If the loan application is approved, the e-commerce company should review the loan terms, review the loan contract’s fine print, and have the lender layout the final finance closing process. It’s a good idea to have a trusted business associate, financial advisor, or attorney review the loan contract for accuracy and thoroughness.

Tips for Getting an E-commerce Business Loan?

While there’s no shortcut to obtaining e-commerce financing, there are several savvy tips to help get the job done. These suggestions are at the top of the list.

• Expand your range of financing possibilities. Focusing on a single e-commerce financing provider may be short-sighted, as not all lenders are alike. To cover all the bases, obtain financing quotes from at least three lenders and make sure to review their loan terms.
• Know what you need. Not all e-commerce companies are alike, either. Consequently, one e-commerce company may opt for an equity line of credit to tide them over lean seasonal business periods. Or, another e-commerce company may require a fixed loan to cover its financial needs over the course of a year or more. Knowing what your e-commerce financing needs is a big “Step One” in getting the financing suited to your company’s unique needs.
• Explore financing alternatives. Not all e-commerce financing models are alike, either. If a bank or other traditional lender doesn’t meet your financing needs, turn to alternative lenders like peer-to-peer lenders, angel investors, or crowdfunding sources to get the financing your e-commerce company needs.
• Improve your credit picture. Well in advance of filing any loan application, make sure your business and/or consumer credit score is in robust condition. Credit health may be the most important factor when applying for e-commerce company financing.

Are There Other Ways to Fund an E-commerce Business?

If the traditional route to e-commerce financing, like term loans or business lines of credit, doesn’t bear fruit, there are solid financing alternatives, as follows.

• Microloans: These loans are smaller in size than traditional business loan amounts, but they can still net a company as much as $50,000 (or as little as $1,000), depending on your e-commerce financing partner. If your business needs are modest, a microloan lender can seal the financing deal.
• Peer-to-peer loans: Peer-to-peer financing platforms have grown substantially as digital lending has gone mainstream. Peer-to-peer lenders enable e-commerce companies to gain financing without having to relinquish any control over your company. For companies just starting out and who don’t need large amounts of financing, peer-to-peer lenders are well worth a closer look. Credit reviews tend to be more lenient with peer-to-peer lenders, as well.
• The U.S. Government: Uncle Sam can ride to the rescue of an e-commerce company via a U.S. Small Business Administration loan. Like with any government entity, the SBA paperwork process can be lengthy, but if you’re in no rush, the SBA is open to financing U.S. small businesses, especially during the ongoing COVID pandemic. A bonus: SBA financing is backed by the U.S. government, so you know you’re dealing with a stable e-commerce financing partner.

Conclusion

Ecommerce business owners who need the funds to start or expand their business have a variety of online options for ecommerce business funding with faster approval times and looser eligibility requirements than traditional banks. To find the best loan for you, narrow down your options to lenders and platforms that you can qualify for, and then pre-qualify with lenders who offer a soft credit pull. New business owners will likely find that Fundera or Torro best meets their needs, while creditworthy established businesses may want to consider SmartBiz. Biz2Credit and Fora Financial are great options for poor credit borrowers, while BlueVine offers a line of credit that could appeal to certain ecommerce business owners with an ongoing need.