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How to Secure an E-Commerce Business Loan
June 07, 2022
16. E-Commerce Financing-07

How to Secure an E-Commerce Business Loan

In 2011, US e-commerce sales hit $199 billion. In 2019, e-commerce sales reached $576 billion, which amounts to 189 percent in sales growth over eight years. The following year, when the pandemic hit, sales spiked 31 percent to $759 billion in one year.

This long steady growth followed by increased e-commerce sales due to the pandemic presents plenty of opportunities. Yet, small businesses need additional working capital to capitalize on these opportunities. This is especially true when they’re competing with e-commerce giants like Amazon.

E-commerce financing solutions provide funds for everything from inventory and payroll to website design and technology.

This post will explain how you can receive and use an e-commerce business loan to grow your company.

Start with Your Business Financing Requirements

There are several different kinds of e-commerce business loans. They differ by loan amount, loan structure, type of lender, repayment terms, cost, the application process, and other terms and conditions.

Because there are numerous types of e-commerce loans, we recommend you start your search by determining your financing requirements. By doing so, you’ll be able to focus your search on the options that work best for you. To assess your financing requirements, you should specify:  Your preferred loan term and loan amount.

  1.   How you’ll spend the funds (i.e., to buy equipment or pay salaries)
  2.   The maximum monthly payment you can afford
  3.   Whether you’re willing to put up collateral or provide a personal guarantee.

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Explore Different E-Commerce Business Lenders

E-commerce small business loans are available from alternative lenders, traditional banks and credit unions, and Small Business Administration (SBA) lenders. Regardless of whom you obtain the loan from, the loan itself will function similarly. You’ll receive funding that you can spend on business expenses in exchange for periodic payments of principal and interest rates.

However, the costs, application processes, requirements, funding times, and service varies significantly among different types of lenders.

We strongly recommend that borrowers educate themselves about different types of lenders before they apply. Learn more about alternative lenders vs. bank lenders and SBA lenders vs. alternative lenders.

How to Obtain an E-Commerce Business Loan

Once you’ve outlined your financing requirements and online lender options, you’ll need to collect and submit personal business information.

In the sections below, we’ll walk through the types of information that lenders usually (but don’t always) require.

1. Assemble your business plan 

In most cases, it’s wise to create a business plan that explains how you’ll use and repay your loan. A business plan forces you to scrutinize your ideas and test your assumptions.

Learning how to create a business plan is beyond the scope of this post. However, you can get some ideas in our post on helpful strategies for writing a business plan.

Along with your business plan, you should include information about your online business’s performance, such as:

  • Your previous year’s revenue
  • Average monthly sales volume
  • Cost of goods sold

2. Compile personal information and business documents

Different lenders have different requirements, but you’ll often need to submit personal information such as:

  • Personal credit reports
  • Criminal record
  • Previous addresses and names
  • And more

In addition to personal information, you may need to provide business licenses, permits, and certifications. Other documents that you may want to have on-hand include:

  • Schedule C’s
  • Articles of incorporation
  • Anything that proves you own the business can be helpful to have on hand.

3. Organize Your Financial Statements

Part of your loan application will likely require financial statements including, but not limited to the following:

  • Profit and loss statements
  • Tax returns
  • Bank statements
  • Balance sheet
  • Accounts receivable

If you use online accounting software, you should be able to pull many of your documents easily. In any case, you should compile these basic financial statements to save time during the application process.

Also, you should contact at least one of the major credit bureaus for your personal and business credit scores. Since many lenders have minimum credit score requirements, a low score may take some lender options off your list.

Similarly, many lenders have predetermined debt-to-income ratio requirements. Therefore, it can save you significant time to outline any debts you may have. You can do this by creating a debt schedule with details such as:

  • Outstanding debts
  • Remaining balance
  • Monthly payments

4. Complete the Loan Application Process

Generally, you can get the forms you need to apply online from your prospective lenders. Then, it’s a relatively simple matter of answering the application’s questions and providing the supplemental information requested.

As you fill out your application, make sure you answer honestly and completely. The lender will double-check the information you submitted with background checks, credit reports, and public record requests. So, if you provide any false information, your application will get rejected.

Also, keep in mind that your lender may have additional questions before accepting your application.

Once your lender accepts your application, all you can do is wait for their decision. If your application is approved, you’ll need to evaluate the loan offer. Assuming you accept, your lender should walk you through their closing process.

Conclusion: Put Your E-Commerce Loan Funds to Use

Obtaining E-Commerce business financing is a huge milestone for your small business. Still, the real challenge is ensuring your new cash infusion generates more value than it costs. This is where creating a business plan can be especially useful.

After evaluating your strengths, weaknesses, the market, and economic trends, you can determine how to maximize ROI.

To get you thinking, here are a few ideas of how you can use your e-commerce small business loan:

  • Purchase more inventory ahead of the busy season.
  • Invest in new back office technologies such as accounting, HR, or inventory management software.
  • Hire additional permanent staff or temporary employees for the busy season.
  • Rebrand your website
  • Launch a new marketing campaign or expand an existing one.
  • Expand your product lines
  • Start or expand your data analytics capabilities.

Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2022.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].