How to finance the growth of your e-commerce business

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Whether you are a beginner e-commerce startup, a thriving online business or an established brand, transitioning to the next level requires capital. You may need seed funding to launch your business – setting up supply channels, finding the right niche, finalizing packaging and more.

You may be moving fast and need funds to order inventory, avoiding stock-outs and competing with competing sellers. Expansion to other marketplaces and geographies also require additional capital.

You may also need urgent capital to meet a key strategic direction (rebranding, expanding product line, or expanding your supplier base). Building good relationships with lenders, as well as your suppliers, is key to securing favorable terms for years to come and boosting your growth as a new seller.

Related: What is Amazon FBA? Amazon Business Fulfillment Guide

Before applying for funding, take the time to decide exactly why you are seeking funding: what are your business goals? Where are you going to spend the funds? Do you have a concrete business plan? Are you comfortable with the repayment terms? Estimate exactly how much you need and don’t be tempted to borrow more than that.

The companies that we have grown successfully and positioned for a profitable exit, have chosen one of the following financing options to take their FBA business to the next level:

1. Amazon loan

One of the easiest financing options for newcomers FBA Companies with excellent customer reviews, no complaints in the last 6 months and total sales of at least $10,000 in the last year, is Amazon lending service. Sellers can apply for term loans ranging from $1,000 to $750,000 with interest rates of 3% to 16%.

Amazon also offers a line of credit option, in partnership with Goldman Sachs’ Marcus, in which sellers only pay interest on the funds used. This, however, is relatively expensive with interest rates of up to 21%.

Although you get quick approvals (1-5 days), there are also some downsides. Term loans have a short-term repayment schedule. So the monthly payments are high, regardless of your sales. Additionally, funds can only be used to replenish Amazon inventory. In contrast, line of credit funds may be used for other purposes including staffing and advertising.

Related: 3 Things to Consider Before Owning an Amazon FBA Business

2. Fintech loan

A host of new-era, technology-driven businesses enable quick and convenient financing for FBA business growth, with steady cash flow and impeccable financial performance. Providers like Payability and Sellers Funding offer quick funding up to $250,000, depending on your monthly income, if you have at least $5,000 to $10,000 in monthly sales.

A one-of-a-kind financing option, AccrueMe offers up to $1 million in financing to sellers with at least 6 months of experience – with no interest, no monthly payments, and no loss of property to the seller. As Don Henig, co-founder of AccrueMe, rightly puts the need for funding:

“The beauty of being an FBA seller is that once you’ve established a profitable product, you have nearly limitless profit opportunities due to Amazon’s market reach. The only limit is the capital of a seller. The sooner a seller can secure and deploy the necessary capital, the sooner they can protect and grow their market share and profitability. A delay in deploying capital only cedes profit potential to competitors. C This is why prioritizing access to capital is so important.

3. Business term loans from alternative lenders

Term loans have been a staple of traditional banks for decades. But alternative lenders and fintech companies have also started offering term loans to e-commerce businesses. These loans are suitable for large, established FBA businesses in the later stages of their life cycle.

Since income and credit history are taken into account, these term loans are difficult to obtain for start-up businesses.

Related: Term Loans or Lines of Credit: Which is Best for Your Business?

4. Merchant Cash Advances (MCA)

Now even new e-commerce businesses can leverage MCAs to borrow up to $500,000 and repay the funds based on a fixed percentage of daily or weekly sales, based on the agreed interest rate or factor rate (ranging from 1.1 to 1.5).

MCAs are well suited for new businesses with relatively low credit scores and lacking decent cash flow (at least $10,000 in monthly revenue). Approvals are quick (often within hours), with minimal documentation, and there are rarely any credit checks or collateral requirements.

However, you should beware of the high interest rates (up to 25%-30% APR) compared to other options and the shorter payback period resulting in higher repayments.

5. Loan between individuals

You can get financing directly from investors who like your business and are confident in your credit and sales history. This works well if you are operating in a niche industry or have a unique product.

This financing option is much more flexible than term loans and MCAs because credit rating is not the only criteria used to judge your business. But approval times are longer and interest rates can go up to 9-10%. Additionally, things like credit checks, financial records, and detailed business plans are a must.

6. Brand Accelerators

E-commerce brand accelerators are experts armed with strategic and technological know-how to increase the value of your business. When you partner with a brand accelerator, industry experts analyze the ins and outs of your business and craft a unique growth plan to scale it to new heights.

They don’t charge you for their services until your rating increases, and then they will charge you a small percentage of that rating increase. This makes branded accelerators an economical option to finance your e-commerce growth.

Your fundraising journey should start with clear goals for how you will use the funds. FBA financing can provide you with a launch pad to take your business to the next stage and scale it the way you want.

Finally, don’t view debt as a bad thing on your balance sheet. Money attracts money, and funding is essential to achieve this.

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