eCommerce Funding: What is the Best Type For Your Business (2024)

eCommerce funding is becoming a more and more popular option for brands looking to accelerate the growth of their ecommerce operations.

In 2022, annual retail eCommerce sales grew by 6.5%. In 2023, sales grew faster at 8.9%. And in 2024, sales are predicted to increase by 9.4%. 

Our indispensable smartphones and connection to the internet have made eCommerce not just a want, but a need for the modern generation.

eCommerce behemoths like Alibaba and Amazon are at the forefront of eCommerce businesses today. 

However, most of the 24 million (and growing) eCommerce sites globally are small to medium-sized businesses with few resources to explore and maintain eCommerce expansion. 

For this reason, many new eCommerce businesses, or businesses expanding to online operations, are looking towards eCommerce funding to help them launch and scale quickly.

In this post, we’ll tackle everything about eCommerce funding—what it is, who it is for, its benefits, and the types of eCommerce funding you can avail of.

What is eCommerce funding?

eCommerce funding is additional financial support and investment that businesses operating in the eCommerce) sector seek to start, grow, or sustain their operations. 

eCommerce funding is crucial for covering various expenses, such as product development, marketing, website maintenance, inventory management, and overall business expansion.

There are several sources of eCommerce funding, and businesses may use a combination of these options (We’ll talk more in-depth about each of these later)

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• Bootstrapping: Funding the business using personal savings or revenue generated from sales, without external investment.

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• Venture Capital: Seeking investment from venture capital firms in exchange for equity in the eCommerce business.

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• Angel Investors: Individuals who invest their personal funds in startups or small businesses, often in exchange for equity.

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• Crowdfunding: Raising small amounts of money from a large number of people through platforms like Kickstarter or Indiegogo.

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• Bank Loans & credit: Traditional loans or lines of credit (e.g. credit cards) from financial institutions that need to be repaid with interest.

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• Private Equity: Selling a portion of the business to a private equity firm in exchange for capital.

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• Government Grants and Subsidies: Some governments offer grants or subsidies to encourage the growth of eCommerce businesses, especially in certain sectors or regions.

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• Accelerators and Incubators: Joining business accelerators or incubators that provide funding, mentorship, and resources in exchange for equity.

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• Strategic Partnerships: Collaborating with other businesses or investors who can provide both funding and strategic support.

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• Initial Public Offering (IPO): Going public by offering shares of the eCommerce business to the public through a stock exchange.

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The best choice of eCommerce funding depends on your business's stage, size, business model, and growth plans. 

Different sources of funding have various implications for ownership, control, and the overall direction of your business. 

So, it's essential for you to carefully evaluate their options and choose the funding strategy that aligns with your short-term and  long-term business goals.

Why Businesses get eCommerce Funding?

Money is the lifeblood of a business. Without proper cash flow and funding, eCommerce operations are put at significant risk with no capital to work on and no safety nets for slower seasons. eCommerce funding will help eCommerce businesses with:

1. Start-up capital

Kickstarting a business is not just risky—it can also be expensive. Many businesses, eCommerce included, don’t break even months or even years after the start of their operations. Which means in the first few months you’ll basically be cashing out before seeing a return.

High start-up costs can cause your to dry up before thyour e business has a chance to flourish.

eCommerce funding helps you leverage relatively low-cost borrowing options that are tailor-made for eCommerce operations. This helps you manage the costs of launching and sustain the day to day operations, giving you more time to get traction.

2. Use as working capital

Working capital measures a business’s liquidity, operational capability, and financial health. 

All eCommerce businesses need healthy operating capital to sustain day-to-day operations—from website maintenance, personnel salary, debt repayments, avoiding inventory stockouts, and product shipments.

According to Anthony Martin, Founder and CEO of Choice Mutual, “A healthy working capital doesn’t mean ‘just enough’ working capital. If your funds are zero after paying your regular cash outlays with no safety net for cash flow challenges, then you may need additional eCommerce funding.”

For example, an unexpected event, such as the Russia-Ukraine war, could leave you unable to source enough inventory to keep up with demand, resulting in a dip in sales. Funding could allow you to stay on top of your costs and weather the storm.

3. Marketing & Acquisition

Funding marketing campaigns, especially online, does not come cheap. Pay per click, content, email and social media marketing, search engine marketing, and maintaining a website are just a few of the marketing costs that eCommerce businesses typically engage with for effective brand awareness and lead generation.

With eCommerce funding plans in place, business owners can leverage funds to prioritize digital marketing methods to promote products and services, especially in social media platforms, either through paid ads or affiliates.

Often, scaling a new brand requires sizable financial outlay. eCommerce funding helps brands attract new customers and grow the business.

4. Growth and expansion plans

According to Co-Founder and Managing Partner at Belkins, “Growth and expansion are goals for all kinds of businesses, eCommerce or not. For eCommerce, specifically, whose method of transactions is mainly done online, the expansion possibilities are as expansive as their market.”

Simply put, eCommerce businesses often have greater potential for market expansion, going from local to global market with the right marketing strategies and enough resources to fund a global scale operation.

eCommerce funding capital can help a business enter a new market, set-up operations overseas or launch a new in-demand product line.

5. Research & Development

As businesses grow, the potential for expansion also grows—but not without significant development in its products and services. 

eCommerce funding can significantly help eCommerce businesses grow by funding product improvements, as well as new product research and launches, in order to strengthen brand identity and introduce new products to its market.

The costs associated with product development can be high and quickly eat up any available working capital. Funding can buffer these costs and allow the rest of the business to remain fully operational.

6. Long term investments

Long-term investments can be costly, and funding them is challenging for eCommerce businesses. 

Some examples of long-term investments beneficial for eCommerce operations include investments in technology or software like accounting and inventory software or transportation and equipment such as delivery vehicles. 

For example, buying or leasing a car with bad credit may be difficult for most eCommerce owners, so turning to alternative funding options may be a necessary long-term investment for some eCommerce businesses.

Funding options for eCommerce businesses

There are several funding options for eCommerce available. There’s no one-size-fits-all for eCommerce funding, so it’s essential to assess your needs, business size, and revenue to find your business's most viable funding option.

1. eCommerce business loans

Traditional bank loans are not out of the picture for eCommerce funding. Like regular businesses with physical locations, conventional bank loans for eCommerce businesses also involve interest, terms, and a fixed repayment period. They will also examine your cash flow, financial statements, FICO credit score, and other factors.

What makes traditional bank loans a challenge for eCommerce businesses is that banks still take collateral as a form of security for letting you borrow money, usually in real estate or vehicles. The non-existence of these in many small eCommerce businesses makes traditional bank loans a no-go for many entrepreneurs.

Pros: many traditional bank options, clearer terms, lower interest rates

Cons: difficulty in approval, time-consuming, collateral needed

2. eCommerce funding platforms or companies

If traditional bank loans are out of the equation, there’s nothing better to fund an eCommerce business than an online lending platform directly catering to eCommerce businesses.

These eCommerce funding platforms usually offer tailored funding plans and business management tools. Compared to other funding options offering a one-time deal, eCommerce funding platforms understand the flexibility eCommerce businesses need—providing cash needed as often and as quickly as possible, usually within 24 hours.

Because of their flexibility, eCommerce funding platforms have several restrictions as well, especially when it comes to application and screening. Most eCommerce platforms make sure that you have positive business performance with a specific revenue threshold as their requirements. Thus, getting approved for eCommerce funding may be difficult if you don’t meet their required revenue measurements.

Pros: Faster turnaround time, tailored for eCommerce businesses, continuous funding

Cons: Difficulty in the initial application process, inspects business performance and revenue threshold.

3. Credit cards and line of credit

If speed and easier access to cash are your top priorities, turning to credit cards may be your best option. A business credit card or a personal credit card of the owner allows credit card cash advances up to a specific limit, which you can get in a matter of days. 

Similarly, a line of credit allows you to borrow up to a specific limit from the bank and can almost be replenished immediately upon repayment. The challenge with credit card borrowings and lines of credit is the outrageous interest rates compared to other funding options. 

Lines of credit and credit card borrowings, because of the costs involved, are only recommended for short-term borrowings or short-term goals that would allow you to repay the loan in a short period—like borrowing cash to avail of a special limited-time discount from a supplier.

Pros: Not tied to a collateral, easier turnaround, easy access to cash

Cons: High interest rates, required good credit standing, charges maintenance fees

4. Invoice factoring

Invoice factoring is funding allowing eCommerce businesses to get cash by “selling” their sales invoices to a third party.

Cash flow problems usually arise in the window between the sale and the collection of the receivables. To address this problem, businesses typically turn to third-party factoring as a breather to acquire cash for day-to-day operations.

For eCommerce businesses, eCommerce platforms usually do not let you immediately receive your sales as they are made—sometimes taking weeks or months. Invoice factoring helps make these unpaid invoices liquid. 

To summarize, here is how invoice factoring works:

1. The seller (the business) sells its unpaid invoice to a factoring company.
2. The factoring company assesses the business and its invoices based on specific metrics.
3. The factoring company advances 80 to 90 percent of the invoice value to the seller.
4. When the debtor pays the factoring company for the invoice amount, the factoring then releases the remaining 10 to 20 percent of the invoice amount to the seller, minus factoring fees.

Pros: Quick access to cash, no impact on credit score, responsibility of collection rests on the factoring company

Cons: Nonpayment of the debtor may result in fees and surcharges, hefty hidden fees

5. Merchant cash advances

A merchant cash advance (MCA) is a type of eCommerce business financing similar to invoice factoring, which gives you cash upfront. However, instead of future receivable collections, MCA collects from your future debit or credit card revenue.

MCA lenders usually look at your sales trends to assess how much money to lend or if you are eligible. Since MCAs are not business loans but “advances” on future sales, interest, and fees for this type of funding are generally higher than traditional loan methods.

Approval rates for MCAs are lax compared to other borrowing methods, with 90 percent approval on average, according to the 2023 Report on Employer Firms. Because of these, those with bad credit can still quickly get an MCA, and your repayments for MCA won’t be reported to credit bureaus either.

To simplify the method of how MCAs work:

1. The business and financing body reaches an agreement on the contract amount. The financing body then gives the business the lump sum of the agreed-upon amount.
2. The agreement contract includes the fees of the advance. A factor is multiplied by the borrowed amount, which varies by lender.
3. The financing body then collects payments either by: Percentage of debit or credit card sales, daily or weekly or taking fixed withdrawals to your business bank account
4. Payment of other fees.

Merchant cash advances are also a type of revenue-based financing (RBF). However, RBFs collect repayments monthly based on a percentage of your monthly sales instead of weekly or daily.

Pros: Easy access to cash, high approval rates, no collateral needed

Cons: Expensive factor rates, daily or weekly repayments, don’t positively affect credit score, affect gross profit margin

6. Crowdfunding

As the name suggests, crowdfunding is a method of receiving funds for your eCommerce business by pooling funds from several interested individuals through a crowdfunding platform. 

In a crowdfunding platform, several entrepreneurs pitch business ideas, and investors can pick start-ups they would like to invest in in exchange for a percentage of return. You can also crowdfund from individuals you know, which takes a bit more time and effort than a crowdfunding platform, mainly composed of individuals with available money to invest.

Linda Shaffer, Chief People Operations Officer at Checkr, says, “Crowdfunding makes your business pitch available for anyone to see, which means you risk the intellectual property of your ideas. At the same time, there’s no assurance as to how long and how much you’ll be able to reach your desired capital through crowdfunding—some take months and even years.”

Pros: Visibility of your capital needs to a broader audience with capital to invest, investors have no say in business operations

Cons: Risk of intellectual property theft, unclear funding turnaround 

7. Venture capitalists

Venture capitalists are usually corporations or private organizations providing monetary support to fund start-ups and emerging companies with growth potential. 

Venture capital funding typically lets you borrow a huge amount of money, equivalent to a significant stake in your business, causing you to lose control over the decision-making and control over your business without prior approval. 

Venture capitalists are examples of equity-based funding, wherein funds are received in return for stakes in the business. 

Pros: Provides huge amount of capital, targets start-ups, ability to start operations quickly

Cons: Lose control over business decision-making, strict contractual agreements

8. Angel Investors

Compared to venture capitalists, usually corporations and organizations, angel investors are typically wealthy individuals willing to provide seed money to promising businesses in return for ownership equity.

As a type of equity-based funding, angel investors can choose to involve themselves in a business’s operations or fund it continuously. Most angel investors are high-risk takers who believe in an idea, run with it, and expect a high rate of return for that belief.

Pros: Favorable terms, flexible repayment terms, easy cash access

Cons: Reduced equity, less control, expectations of high returns 

Comparing eCommerce financing options: which one is best for you?

eCommerce funding entities and individuals are diverse and offer different terms, benefits, and risks. Depending on your risk appetite and business needs, an option that may be best for another may not work for you. 

Here’s a brief overview of some factors that may affect your decision-making in choosing eCommerce funding:

1. Interest

An important part of every funding decision-making for eCommerce websites is the cost of the funding choice. This cost is mainly in the form of interest. 

Some eCommerce funding options have higher interest costs than others, and some options have additional fixed and hidden fees that business owners must carefully consider.

If your priority is getting funding with the least possible cost or interest, you can choose venture capital or angel investors who do not require an immediate interest in their invested funds but may require equity or control of the business. Though, venture capital may be hard to attract if you don’t have a pathway to scale the business.

Credit card advances and bank loans also have low-interest options if you cannot find equity investors. You may want to avoid personal loans, merchant cash advances, and invoice factoring as they usually come with high interest and several additional hidden fees.

Yes to: Venture capitalists, angel investors, bank loans, credit card advances

No to: Personal loans, merchant cash advances, invoice factoring

2. Speed of access to funds

For most businesses, funding is a recourse for easy and quick access to money to sustain short-term business operations. Many businesses use eCommerce funding cash to pay employee salaries and pay government dues or loans and interest dues while capital is being rolled for primary business supplies. 

If your priority is access to cash, most of these funding options come with low to high-interest rates. Examples are credit card advances, invoice factoring, merchant cash advances, and eCommerce funding platforms. 

Avoid funding sources that have very rigorous application processes if you want immediate access to cash, like bank loans and lines of credit. Access to cash may also be difficult without the right network, like with venture capitalists. However, the right angel investors are more flexible with cash outlay.

Yes to: Credit card advances, invoice factoring, merchant cash advance, eCommerce funding platform, angel investors

No to: Bank loans, line of credit, crowdfunding, angel investor, venture capitalist

3. Equity and control

Retaining equity and control is a major concern for some businesses, regardless of the need for cash. Since some funding options require you to give up a portion of your business ownership, you should carefully consider if you are willing to risk your business decision-making control over a third party.

If you want to retain full control over your business, avoid equity funding like angel investors and venture capitalists as they usually require a certain business stake depending on their investment amount. 

At the same time, consider what your investors can bring to the table beyond just cash. Often, angel investors are successful entrepreneurs who may have valuable connections in the industry, or who can provide amazing mentorship and guidance.

Yes to: Crowdfunding, bank loans, merchant cash advance, line of credit, invoice factoring, eCommerce funding platform 

No to: Angel investors, venture capitalists

4. Risks and safety

Not all funding sources are safe sources. Many funding options come with inherent risk more than others, especially those with high interest and easy access to cash. 

For this comparison, it is important to consider how safe your business idea is (if you are a start-up) or how much risk is involved in getting tied up with a funding source.

For example, crowdfunding may be a very risky source since your business idea is being posted to crowdfunding platforms to attract potential investors from interested parties. This puts your business idea at risk of being stolen since some take months or even years to get their desired capital investment.

Other sources, especially invoice factoring, put you at risk of hidden additional fees that may not be visible in fine print.

Yes to:  Bank loans, credit card advances, merchant cash advances, eCommerce funding platforms, angel investors, venture capitalists

No to: Crowdfunding, invoice factoring

How to get funding for eCommerce website

Now that you know why you need to get funding for your eCommerce website and the different options you have for eCommerce funding, the real question is: how do you get funding for your eCommerce website?

Surely, angel investors and venture capitalists don’t just magically land on your doorstep, and banks and other lending institutions won’t just hand over money without asking for necessary documents from your business.

The steps you take to access funding may be different depending on the type of funding you need for your eCommerce website. The steps required to obtain different types of funding vary from country to country and are beyond the scope of this article. So we'll outline them below and provide a link for further reading:

How to get investor funding

1. Develop a solid business plan
2. Create a professional pitch
3. Network and attend events
4. Get involved with the community
5. Seek support from family and friends
6. Be transparent and responsive

📖Suggested resource: Hubspot's guide to finding investors

How to get a personal loan or bank funding

1. Prepare bank and financial statements
2. Build good credit history
3. Meet income requirements
4. Develop a solid business plan
5. Prepare documents for collateral, if needed

📖Suggested resource: Forbes' guide to getting loans. Alternatively, consult with your local financial institution.

How to get eCommerce platform funding

1. Create an account on the online platform like 8Fig or Wayflyer.
2. Connect your online store bank account
3. Meet income requirements
4. Meet trading history requirements (some eCommerce funding platforms require you to have at least one year of operations on your online shopping platform)

📖Suggested resource: 8Fig's funding platform comparission article

How to get merchant cash advances

1. Prepare bank statements or financial statements
2. Build good credit
3. Provide merchant account or credit/debit card account statements

📖Suggested resource: Nav.com's guide to merchant cash advances

eCommerce funding for your business in the modern world

At a time when eCommerce expansion is a live-or-die choice for many businesses, the need for funding to keep up with the competition may be greater than ever. 

However, you must carefully assess your business’s needs and the funding options available. Funding can help you in times when additional capital is needed to grow or survive. But it can also cost you a lot in the long term - either in interest or equity.

Whether you’re an entrepreneur on your first eCommerce venture or a traditional business owner looking to expand your reach online, the first step to any eCommerce funding decision-making is to assess your needs, your capability to pay, and the risks you’re willing to take to get the funds you need for your venture.