E-commerce Financing

Table of Contents

Get the latest e-commerce industry news, best practices, and product updates!

Welcome to our E-commerce Financing page! Here we will explore the various financing options available to businesses looking to expand their e-commerce operations. We’ll cover everything from traditional bank loans to alternative financing methods like crowdfunding and revenue-based financing. Whether you’re just starting out or looking to scale your existing e-commerce business, understanding the different financing options available to you is crucial. Join us as we dive into the world of e-commerce financing and help you make informed decisions for the growth of your business.

What is E-commerce Financing?

The concept of e-commerce financing comes after e-commerce. E-commerce includes purchasing and selling goods and services through online mode. The ‘financing of e-commerce businesses’ is referred to as e-commerce financing. It is funding or financial help to web-based businesses to ease their workflow. 

E-commerce financing solutions include invoice factoring, microloans, merchant cash advances, equity investors, crowdfunding, asset-based lending, lines of credit, etc. A business can be grown seamlessly with the help of these e-financers.

Why Do E-commerce Companies Need Extra Capital?

E-commerce companies allow anyone to purchase their products, services, digital products, etc., over the internet, irrespective of location. 

There are several factors responsible for financing an e-commerce seller, and e-commerce consumers demand extra funds to run their e-commerce smoothly. These factors include infrastructure, human resources, logistics, brand building, a stable business model, customer investment, and so on. A few of the elements are described below:

  • Stable business model: Satisfaction plays a vital role in the growth of e-commerce businesses. Discounts play a vital role in establishing a durable model in attracting customers to buy online. Some competitors provide considerable discounts to stay in the market. So, to become a leading player in the market, an e-commerce business has to spend money to stay on top of the e-commerce game.
  • Brand building: Advertisements through TV, newspapers, social media, the internet, etc., is the most powerful tool to build any brand value. Nowadays, celebrities are the most preferred agents for promoting goods. Consequently, celebrities charge a considerable amount of money to do brand promotions. Hence, capital is required here as well.
  • Logistics: Logistics is one of the significant parts of e-commerce businesses. An e-commerce business is not only the deal between business and customer but also between business to business. For transport purposes, logistics charge a lot for their services, adding more to the business’ expenses.

How Does Funding for E-commerce Businesses Work?

Some established e-commerce websites have their funds ready. They don’t have to rely on any banks or any other financial help for their funding. Such e-commerce enterprises generally issue extra stock and split the existing one for fundraising. 

On the other hand, it is challenging for small e-commerce businesses to sustain themselves financially. Small companies don’t have self-funds; therefore, they must depend on banks, family, relatives, etc, to have sufficient funds.

Furthermore, one of the best options is business credit cards. You must have a good credit score to benefit from business credit cards. Else, you can also pay their fee by posting their advertisements on your website for your e-commerce financing. To find e-commerce financing options, you should continue reading this article! 

All the Funding Options Available to E-commerce Businesses

1a. Revenue-based funding (variable collection)

This is one of the e-commerce financing options for customers (in this case, merchants). It involves issuing capital in exchange for their future revenue percentage in terms of royalty, which could be 5-10%. The advances get approved at a fixed rate based on your company’s worth for a month or year, and the merchant has to repay month-to-month. 

So, the higher the revenue, the higher the repayment should be. Finance lenders always look at a company’s financial history before lending money. They usually connect to your back-end system to give you the money. They don’t demand paperwork and provide you with financial help within days.

Specifically, variable collection-based funding is one of the beneficial options. In this, e-commerce business takes financial help in the form of loans of a certain amount and repays it month-to-month according to their gross profits and real outcome.

1b. Revenue-based funding (flat fee)

The flat fee concept is a good alternative for new e-commerce businesses. This funding works on the principle of a fixed rate fee. You have to pay a fixed percentage of 1-5% every month for a very long time, which may be up to several years, irrespective of your monthly revenue.

It is a better option for new business start-ups because of its lower outcome. As the business grows, they have to repay a massive amount of its total revenue, which is not fruitful for a successful business.

2. Merchant cash advance

Merchant cash advance funding is also known as a business cash advance. A cash advance is a secure option for e-commerce businesses because it provides vendors access to future revenues earlier. It is a trendy e-commerce merchant financing.

It is an effective way of instantly lending an enormous amount of capital, which helps to line up your business cash flow. In unusual cases like lower worth, you don’t have to pay a lump sum amount at one time which you can’t afford.

This type of e-commerce financing option is best suited for those sellers who have seasonal demands. 

Things to remember before taking these benefits are:

  • You should be well aware of the terms and regulations of merchant lenders, or they might end up charging too much extra money than what was initially agreed upon and demand frequent payments.
  • These merchants are not traditional financers. They don’t stick to the same rules and regulations. Hence, they can charge very high, proving to be a loss for you.

So, to get the best benefits, you should check and choose the most trustworthy lender. 

3. Lines of credit

A line of credit is also known as a credit line. In this e-commerce financing option, a merchant can borrow the maximum capital at any time. This credit line consists of a maximum limit which the lender sets up. You can repay the amount anytime and can re-use it whenever needed.

This type of e-commerce funding is flexible in terms of repayment. It is an agreement between a financier, usually a bank or customer, that can organize the maximum amount of loan the merchant can take.

4. Bank loan

A bank loan is one of the most preferred financial help business owners take to fund their e-commerce businesses. 

The borrower can take money in advance, and the lenders are usually banks, non-banking financial companies, government agencies, etc. The borrower has to repay the borrowed amount together with interest on the principal amount, finance charges, and processing charges on the scheduled date to avoid charges as a penalty.

Most of the time, the merchants submit personal belongings like property papers and assets like business documents for security measures.

5. Bank overdraft

Bank overdraft is provided to a few customers depending on their relationship with the bank. In this service, the bank offers an extended facility to the customers when their account balance reaches zero. 

The interest charge of the overdraft facility varies from bank to bank. The bank charges separate fines in the name of zero account balance and non-maintenance of the account. The main feature of a bank overdraft is that it has a predetermined limit. It doesn’t have to be paid like EMIs and is equally applicable to joint account holders.

6. Equity investors

Equity investors are those who invest their money in an organization in exchange for a share of ownership or with the expectation to get capital gains or capital dividends when the company rises. 

The main advantage of equity investment is that it increases the invested amount at the initial stage, resulting in capital gains and dividends. The crucial disadvantage is that the investor has no guarantee of getting a return on their investment. So, equity investors must keep the risk elements together with the possibility of reward.

7. Crowdfunding

Crowdfunding is a beneficial option for financing E-commerce businesses for getting funds. It includes investments from family, friends, organizations, institutions, etc. You are not bound to any strict rules and regulations like traditional financing. For instance, you don’t have to answer any investors about your business growth and declines. It allows you to reserve complete ownership control of your e-commerce business.

Furthermore, this is a possible way to get your brand noticed on e-commerce platforms. There is no risk involved in crowdfunding, but there are chances of not getting enough funds per need. In the end, crowdfunding has merits and demerits and can be used in tandem with traditional financing measures. 

8. Grants

Grants are a kind of ‘free money’. This is an e-commerce seller financing option which funds them from organizations like NGOs, institutions, private firms or any foundation. 

In this case, money is granted based on the e-commerce business startup idea by looking at its feasibility, location, and other factors. This is a great practice to raise funds for small emerging businesses. To get grants for e-commerce business financing, you must fulfill the eligibility criteria decided by the concerned organizations.

9. Invoice factoring

This is a type of e-commerce financing in which the merchants sell their unpaid or outstanding invoices to a third-party company known as a factoring company. It allows the businesses to get colossal capital at any time and re-invest that amount elsewhere. 

The factoring company takes full responsibility for collecting cash directly from customers, and they work on a commission or percentage basis with merchants for their services. It improves business stability and the cash flow of the concerned enterprise. Its main advantages are 

  • Better chances of business survival
  • Being cheaper than a bank loan
  • Reducing business heads 

Some disadvantages include a long time commitment, the risk of extra cost when it does not work, strained customer relationships, and so on. 

10. Asset-based lending

In simple terms, this is an e-commerce financing help which includes loans in exchange for assets. Your asset will be taken if the loan is not paid on time. It provides property, inventory, marketable securities etc., as loan security from borrowers. 

What is E-commerce Customer Financing?

E-commerce customer financing enables customers to get financial benefits directly from e-commerce businesses. It helps the customers purchase their goods at low or no interest and pay that money later on. 

Buy now and pay later (BNPL) is a well-known type of e-commerce financing for customers. It usually offers a timespan of around weeks to months for loan repayment. Some popular BNPLs are Shopee PayLater, Shopify, etc. 

Is E-commerce Customer Financing Right for Your Business?

Several advantages associated with e-commerce financing make it right for businesses. However, before businesses opt for e-commerce customer financing, certain factors should be kept in mind. These are:

  • Assess your current market and try to understand whether customers would even be interested in a credit facility. For this, you can carry out surveys. 
  • Decide which kind of financing program you will opt for. This could be in the form of a flat rate, discount rate, or no charge. You can consider factors like what you are selling, their price points, and whether customers will likely opt for a credit facility to buy those. 
  • You also need to figure out if you will handle your customer’s finances on your own or hire a third party to do it. Either way, you will have to spend resources tracking and following up on your financing services. So, be sure to factor in this aspect when deciding if you want to provide financing or not. 
  • Overall, keep note of all the risks and rewards associated with customer financing. 

Advantages of E-commerce Customer Financing

1. Increase conversions and repeat purchases

It increases the e-commerce sale by providing the funds and allowing the customer to pay them back after a certain period. It also increases conversion and repeats purchases by roughly 30-40%

2. Attract a wider audience

Providing the funds allows the customer to explore more. Ultimately, this drives up sales and helps brands gain visibility in the market.

3. Improve customer loyalty

Customer loyalty improves when you provide a reasonable credit limit to your customers. Better credit limits and payment policies than your competitor help retain the customer to your facility and make them loyal.

How to Offer Financing to E-commerce Customers

You can provide e-commerce financing options for customers by making your goods and services available according to their convenience. Below are some factors which help you to understand it better:

1. In-house, white-label or third-party provider

In-house financing includes direct financial help to customers by taking the risk of credits, collection of payments, and regulatory compliance. On the other hand, you can provide financial assistance through any third-party company. These take responsibility for all types of risks in terms of collection, regulations, etc. Subsequently, the third party will give you the money on time after deducting their service charges.

2. Integrate financing offers with your e-commerce website’s UX

In this case, the financing option is integrated with your e-commerce enterprise’s website layout. Hence, your customers can easily check out the financing options on the sidebars, panels, and pop-up notifications.

3. Integrate with your point of sale (POS)

Point of Sale (POS) refers to the location of transactions on online e-commerce platforms. You can easily integrate your financing option here and turn this into an e-commerce checkout financing option. So, when your buyers are about to check out, they can visualize the necessary information regarding your financing services and decide whether they want to utilize them. 


Financing is needed by both merchants and customers alike. For merchants, it is essential to remember financing always involves risks and benefits. Hence, merchants should know all the relevant regulatory compliances, traditional funding policies, and other relevant policies before seeking financing solutions.

On the other hand, while providing e-commerce financing to customers, sellers should always think about whether this will help their business or not. Many crucial factors are involved in e-commerce financing in terms of inventory, business, etc. It includes factors like POS, BPNL, payment processing, and collections. Before providing services, merchants should integrate all the factors essential for e-commerce financing. 


What is the future of financial services?

With the growing popularity of e-commerce businesses, it is clear that financial services will also face high demand. Since merchants and customers seek financing solutions, the financial services sector will grow stronger.

Can inventory be used as collateral?

The inventory can be used as collateral because it refers to a short-term loan to buy goods and sell them later.

What are the 4 familiar sources of financing?

The most common financing helps include family and friends, equity investors, institutional investors, and debt providers.

What are the best possible sources of business financing?

The best possible sources include government grants and subsidies, bank loans, venture capital, personal investments, and so on

Why do e-commerce companies need extra capital?

Two primary reasons for the need for extra capital are to stay at the top in the market by providing huge discounts and displaying advertisements.

How do leading online retailers get these e-commerce financing solutions integrated – quickly?

E-commerce financing is a smart solution for every customer. It provides customers with a credit limit needed for their purchases. They can repay this credit according to their convenience on a weekly, monthly or yearly installment basis. Leading online retailers integrate their financing options with their website and POS to make their financial solutions more visible. Hence, they can get this done quickly.

Why are e-commerce financing options useful?

E-commerce financing options provide benefits to merchants to increase sales, market expenses and sell more. They allow the merchants to stabilize their cash flow and cope with apayment obligations by giving them loans.

What is cash flow?

Cash flow defines the net balance of cash moving inside and outside a business at a specific time.

More E-commerce Content


Sign up, and we will get back to you within 24 hours to discuss what services would be best for your business needs. Or speak with us now and tell us what you need.

Up to $250K USD Credits for Locad Customers!

Sign up today and accelerate your growth with Locad’s Partners. Unlock deals across SaaS, Agencies and more.

Exclusive benefits to ace your e-commerce game this 2023 with Locad’s desk calendar!