Merchant advances and financing are useful tools for any e-commerce business. Whether or not those funds go toward essential expenses like payroll, inventory, marketing, and shipping, businesses are often struggling with cash and are spending more quickly than sales receipts are available. We need funds to deal with this.
Not having enough cash is not a sign that your e-commerce business will fail. Absolutely not. Every online business has a dynamic sales cycle, faces significant hurdles when it comes to inventory and audience reach, and requires access to cash.
Smart business owners use credit cards, business loans, or other financing options to overcome these challenges. Companies like Shopify, Amazon, and Walmart have financing programs for owners who sell on their marketplaces. Each one is different, and the more you know about them, the more likely you are to find the right program for your business needs.
Each of these allows a company to borrow cash to meet today's expenses, potentially leveraging assets, including expected future sales. Here's an overview of his three above, as well as some alternative financing options to consider.
shopify capital
Shopify Capital provides funding to help stores leverage their current market position and accelerate growth.
Conceptually, there are benefits to both sides of the funding program. Store owners earn additional funds to keep their doors open and grow their business, leading to more profits over time. At the same time, Shopify receives funds based on a repayment schedule and benefits from the long-term longevity of your store, which generates revenue through fees, payment processing, and activity.
Not all stores are eligible for Shopify Capital. Shopify will send a pre-qualification message to your Shopify admin dashboard prompting you to review the various financing options available to you if you qualify, including the specific cash amounts for which you are pre-qualified. Once you receive that message, you can complete your application to get approved for funding.
Although this process is automatic, it is not without standards. If you're wondering why you didn't receive an offer or why you received the offer amount, it's important to fully understand Shopify Capital's eligibility requirements to receive funds.
- You must reside in Canada, the United Kingdom, or the United States.
- Minimum sales quantity requirements must be met.
- Your store must be considered low risk by Shopify.
These requirements are inaccurate and cause many store owners a headache. Without clear standards or minimum sales volume guidelines, many store owners choose third-party funding sources or lose motivation. Even stores that pre-qualify for Shopify Capital may receive a lower offer after the underwriting process or have their funding offer withdrawn entirely.
amazon lending
In 2022, Amazon loaned $2.1 billion to independent sellers. Amazon Lending has helped many aspiring and established sellers build their businesses. Overall, Amazon Lending can be a very effective resource for those who sell solely on Amazon's ecosystem.
To make the most of this, sellers should maintain a strict routine, typically based on Amazon's two-week sales deposit cycle. While this is far from a deal-breaker, some sellers prefer more frequent sales receipts and flexibility in repayment terms.
Amazon offers annual financing terms that require accurate forecasting of working capital needs for the next four quarters. This demand for accuracy requires a high degree of knowledge in deciding when and how much to spend funds. If you spend everything in the first quarter, will you have enough sales receipts in time to buy inventory for the second quarter, or will you be able to take advantage of it when changes in consumer demand occur?
Amazon Lending is also invitation-only. The approval process can be complex (though not as complex as with banks) and is often opaque. Funding is limited in a sense and must be used to increase Amazon sales volume. Either way, it's fine for people who need to make large purchases through Amazon. Amazon also focuses on selling on Amazon and his FBA volume, so they may not be able to provide the capital to support non-Amazon sales channels.
Sellers can request funding as needed (subject to credit approval) to build inventory, fund operations, and quickly capitalize on business opportunities. Even if your business receives an Amazon Lending invitation, you must apply to see pricing. That's because Amazon offers several financing options, each with their own fee structure and widely varying rates.
walmart marketplace capital
Walmart Marketplace Capital is a program that provides eligible Walmart Marketplace sellers with cash advance offers based on their Walmart Marketplace sales.
Walmart Marketplace Capital Fund has three primary use cases: enhancing marketing, enrolling in Walmart's fulfillment plan, and expanding inventory and product catalogs. Eligibility is determined based on:
- Marketplace selling history (must be a marketplace seller for at least 6 months)
- Sales volume on Walmart Marketplace
- business risk profile
- Compliance with Walmart Marketplace Seller Performance Standards
- Must be a US-based company
- Sole proprietors cannot receive benefits
If Walmart Marketplace Capital makes an offer, e-commerce companies can accept the deal directly in Seller Center. Once accepted, the funds will be transferred via his payment processor (Payoneer or Hyperwallet) on the same or next day via his ACH.
The base payment amount is estimated using past sales and is displayed at the time the offer is issued. Walmart automatically collects this amount from your payments during each payment cycle. If there are insufficient funds in your payment account, Walmart may debit your bank account.
Eligible businesses will be charged a competitive flat fee as a percentage of the upfront amount. Prices remain the same throughout the payment period. Fees are included in the total payment amount and are paid as part of regular installments.
While Walmart Marketplace Capital's initial simplicity and speed are positive factors, the program also has some drawbacks, including:
- Repayment terms are relatively inflexible: Repayments are automatically deducted from marketplace sales, which can cause cash flow issues during periods of slow sales.
- Available only to Walmart Marketplace sellers: You are not eligible to participate if you sell on other platforms or are located outside of the United States.
conventional business loan
Loans from banks, credit unions, and commercial lenders can be an excellent source of financing for established businesses. Unfortunately, e-commerce businesses often do not meet the standards that banks have formed around traditional brick-and-mortar businesses.
Even thriving online shops don't have the traditional capital and assets that lenders look for to assess risk, making traditional loans less valuable to e-commerce business owners. Business loans can also take several weeks to process and be approved. Fees and interest rates may be too high; the average term loan interest rate varies between 10% and 45%.
business credit card
A flexible option, e-commerce business owners can use the card for virtually any expense, especially for short-term cash injections. However, many business credit cards have a very high APR of 18% to 29%, which can be a risk for businesses.
A bad credit score can also threaten your ability to obtain loans and financing in the future. Currently, his average annual percentage rate on small business credit cards is close to 25%.
Cash injection and tailored financing program
Loan programs that tie cash injections to the exact amount needed to cover immediate costs are also an option for e-commerce businesses. Such programs often include third-party fintech tools that are integrated directly into the sales platform to detect real-time cash flow needs and adjust accordingly.
The system automatically transfers funds to your bank, ensuring you receive cash injections in sync with your actual sales receipts. These programs support scalability and eliminate reliance on one-time upfront payments based on rough estimates of medium-term revenue needs. Loans are often secured within minutes to an hour and are based on a repayment schedule based on store sales rather than a fixed repayment method.
This article does not contain all the details for each financing option listed above. Still, this information can be used to begin the process of securing funding or finding better options. It's important to fund your business on the right terms, so roll up your sleeves and do your research.
Look for affordable terms, fast approvals, and streamlined platform management. The more you know about funding source requirements, how they work, and repayment terms, the better you can choose the right tools to grow and sustain your e-commerce business.
