How to Get an Ecommerce Business Loan

When you need money for your brand, an ecommerce business loan can help you get funding while allowing you to keep ownership of your business. This type of loan can be for a large lump sum or regular financing, and be used however you need with flexible terms. 

The downside? Ecommerce loans can include high interest rates, strict credit requirements to access the funding, and you may have to put up business or personal collateral. Especially if you have bad credit. 

Yet, as the saying goes, sometimes you need money to make money. Here’s how you can use a business loan to stock up on inventory, make a big marketing push, or grow your operations. 

Assess Your Needs and Eligibility

While flexible, having a clear understanding of how much money you need, how you plan to use it, and whether you’re eligible for certain types of loans can save you time in the long run.

You can use your ecommerce business loan for inventory, marketing, operations, working capital, joining a co-warehousing space, and more. It’s smart to have a plan in place so you can make the most of the funding when you have it. 

Then, start checking what types of loans you’re eligible for. Most lenders require a certain amount of time in business, a minimal annual revenue, and a decent credit score. 

You can start looking for an ecommerce business loan once you’ve been in business for at least six months to a year. 

A good credit score can be one of the most impactful pieces of eligibility to get an ecommerce loan. If you have a high credit score; you’ll likely have access to higher funding options with lower interest rates. If you don’t have a high credit score, you may have worse terms. Or, you may have to agree to secure the loan with personal or business collateral. 

Gather Documentation for the Ecommerce Business Loan

Once you know how you want to use your business loan and what you may be eligible for, you’ll need to gather the necessary documentation. Documents often requested include:

• Your business plan, including how you plan to use the loan amount.
• Financial statements, including profit and loss statements, balance sheets, and cash flow statements. 
• Tax returns, including your personal and business taxes for the last two to three years. 
• Bank statements, including recent statements from the last three to six months.
• Personal and business credit reports to prove your creditworthiness.

Each of these documents tells the story of your financial trustworthiness. Loan institutions want to see that your business can turn a profit.

Research Loan Options

Once you’ve gathered all of the documentation to apply for an ecommerce business loan, compare your loan options. Ecommerce business loans are not one-size-fits-all. It’s important to explore each option to find the right one for your business. 

Some common loan options include:

• Traditional banks: Often these have competitive rates but come with strict requirements. 
• Online lenders: Great if you need money fast, but the funding may have a higher interest rate. 
• SBA Loans: The Small Business Administration often includes favorable loan terms but require extensive documentation and take longer to get approvals. 
• Microloans: Less common than some of the other options, these are offered by nonprofit organizations or community lenders. 
• Merchant Cash Advances: These loans provide a lump sum in exchange for a percentage of future sales, often with a higher cost. 

If you’re feeling overwhelmed with the options and are unsure how to compare lenders, consider some of the following factors. 

When comparing interest rates and fees, find the lowest terms possible for your loan. 

Consider how long of a repayment period you feel comfortable being locked in to, and how flexible you want your repayment terms to be. 

Is funding speed especially important? If you’re under a strict deadline, an organization’s ability to get you money quickly may be more important than the interest rates (to a point). 

Last, you can also check the institution’s reputations and their online reviews. 

Compare Types of Ecommerce Loans

You can also narrow down what type of ecommerce loan you want by the type of ecommerce loans available to you. Here are some common types of loans. 

Fixed Term Loans

This is the most standard option when it comes to an ecommerce business loan and works well for business owners who know how much they’re going to spend. A fixed term loan is where you borrow capital with an agreement to pay it back in a certain amount of a set period of time. These loans typically have the lowest interest rate and are great for taking on new opportunities and expanding current operations. 

Lines of Credit

Lines of credit allow ecommerce brands to borrow money up to a preapproved credit limit. Your organization can draw cash and deposit repayments as long as you’re within your limit. You’ll also only pay interest on the capital you withdraw. 

There are a wide range of interest rates for lines of credit, as well as borrowing amounts. Some also include a minimum withdrawal requirement. 

Interest rates are often higher than a fixed term loan, but can be lower than business credit card interest rates. Lines of credit work best for businesses looking for short-term funding to ease cash flow or cover operational expenses. Or, for businesses that may regularly need access to funds throughout a period of time. 

Equipment Financing 

If you need a new, expensive piece of machinery, equipment financing could be a good fit to get you what you need. The equipment often acts as collateral while you repay the loan. So, interest rates on these types of loans are usually lower. 

These are ideal if your business just needs money to buy an expensive piece of equipment as the loan cannot be used for anything else.  

Inventory Financing 

Inventory financing is similar to equipment financing in that it’s a set loan amount to purchase or stock up on inventory. Like equipment financing, the inventory is used as collateral, so often these loans also have a lower interest rate. 

This type of loan is ideal for purchasing bulk stock before high selling periods. 

Apply for Your Ecommerce Business Loan

Once you’ve determined what type of loan you want, and from what type of institution, you’re ready to apply for your ecommerce business loan. Set aside time to fill out your application without any distractions to ensure you provide accurate and complete information. This can help you avoid delays. 

Submit your documentation with all the necessary requirements. 

Then, the loan review process begins. You’ll wait a few hours to a few weeks depending on the lender. Standby for questions. There is a good chance the institution you want a loan from will want to discuss your business plan, finances, and how you’ll use the loan. 

If all goes well, you’ll receive your funds, and the money you’re borrowing will be deposited into your business bank account.

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FAQs on Ecommerce Business Loans

What is an ecommerce loan?

An ecommerce loan is a financial loan, line of credit, or funding given to ecommerce businesses to help them continue to run or expand their operations. The business borrows capital and pays it back over a predetermined amount of time, depending on the loan terms. 

Do I have to offer personal or business assets as collateral from my ecommerce business loan?

Depending on your loan details, you may have to offer personal or business assets as collateral for your loan. You’re more likely to have to offer personal or business assets if you have a poor credit score. 

How long is an ecommerce business repayment period?

The length of your ecommerce business loan repayment period will depend on what you and your lender agree upon. Your repayment period could be anything from three months to twenty five years depending on your loan terms. 

Are there restrictions on how I spend my ecommerce business loan funds?

If your ecommerce business loans have restrictions is unique to each loan. Normally ecommerce business loans are flexible. However, be sure to review your contract to make sure that you’re getting a loan that allows you to buy what you need.