The term e-commerce is a very broad one, but in simple terms, it can be used to describe any business that offers goods or services via the Internet or that uses an electronic network to transmit funds or data.
Whatever definition you use, there is no doubt that the e-commerce industry has grown massively in recent years, and it is likely that this significant growth will continue.
Businesses in this sector frequently require funding for their expansion plans, and many of them might therefore want to take out a business loan. In this article, we will look at borrowing options that you might want to consider.
Merchant cash advances are an innovative and flexible method of borrowing money, and you might be able to access as much as £150,000 via this method.
Instead of making regular monthly repayments for a defined amount, you repay merchant cash advances via your debit and credit card sales. Every time a customer makes a card purchase, the lender takes a small percentage of the transaction value as repayment for the loan, while you are allowed to retain the rest of the sale amount.
Typically, the lender might take 20% of each payment amount. The total amount you repay might be around 1.3 times the loan amount – this multiple is known as the ‘factor rate’.
This type of borrowing might be particularly suitable for e-commerce businesses, as every online purchase involves the customer submitting their card details.
The method by which these loans are repaid might be especially attractive for retail businesses, as you repay more when you are selling a lot and make lower repayments during times when things are less busy.
With an unsecured loan, you might be able to borrow anything between £5,000 and £500,000. You repay the amount borrowed, plus interest, over the term of the agreement.
The loan term might be anything up to five years, while a typical interest rate might be anything between 3% and 12% per annum.
Most unsecured business loans require you to make fixed monthly repayments throughout the term of the agreement. It may be possible, however, to find a loan where the repayment method is similar in some ways to a merchant cash advance, where you would instead make daily or weekly loan repayments, with the amount you repay linked to the volume of business you have enjoyed.
Although these loans are not secured by business assets, the lender may ask one or more of the directors to provide a personal guarantee.
Before considering you for an unsecured loan, the lender might ask that you have been trading for a minimum period – perhaps six or 12 months – and that you have a turnover in excess of a defined amount – for example, £50,000 per annum. It may also be possible, however, to find a lender that specialises in lending to newly established e-commerce businesses. You don’t need to be an Amazon-sized corporation to qualify for an e-commerce business loan!
Unlike other forms of business finance, these loans are secured against property or other business assets, and the lender can repossess the asset if you fail to maintain repayments.
Therefore, while you should think carefully about whether you can afford the repayments on any form of borrowing you are considering, it might be especially important to do this for a secured loan.
In recognition of the fact that you have provided a business asset as security, the lender is likely to offer you an interest rate that is slightly lower than for an unsecured loan. You might also be able to spread the repayments over a longer period of time.
Otherwise, these loans are similar to many other forms of finance. You make regular monthly repayments of capital and interest until the loan is repaid.
What might I use the loan for?
You can use the funds borrowed via an e-commerce business loan for any business purpose, including:
- Developing new technologies
- Improving the design, speed, and functionality of your website
- Implementing strategies that will reduce your delivery times
- Funding a marketing campaign
- Recruiting new staff
- Training and developing your existing staff could be very important if you are an e-commerce business, and they need to stay up to date with rapid advances in technology
- Paying unexpected bills
- Assisting with short-term cash flow issues
Get in touch with the team at Funding Bay to find out what could be your business’s best funding option.
