The rapid adoption of the Internet and
e-commerce has created opportunities for small businesses to thrive. However,
many small businesses find it challenging to secure financing in an environment
where loan standards are extremely tight. To meet the growing demand for
financial services that target this segment, more lenders are offering
eCommerce loans as a niche product.
An eCommerce loan is a business loan
specifically tailored to businesses operating exclusively or predominantly
online. These loans offer unique benefits not found with traditional business
loans, including faster funding and lenient collateral requirements. Let’s take
a closer look at the benefits of an eCommerce loan and how you can benefit from
As with any type of loan, eCommerce loans start with a process to
determine whether you’re approved. However, the application process is much
less complicated with an eCommerce loan. This is because the lender will focus
on your business’s revenue and cash flow, not on the value of your assets.
Since the loan is secured against your business’s revenue, the lender will want
to make sure you’re in a position to repay the loan. This is done with a standard
revenue and cash flow repayment analysis. The application process is also
streamlined because the application is typically completed online. In most
cases, you can apply for an eCommerce loan in less than an hour.
One of the biggest benefits of an eCommerce
loan is the speed of funding. Many eCommerce loan providers offer funding
within 24 hours of submitting a completed application. This is due to the fact
that eCommerce lenders fund loans based on your business’s existing revenue and
cash flow. If you have a legitimate business with sufficient revenue and a
positive cash flow, a lender is much more likely to fund your loan quickly.
Borrowers should keep in mind that although
eCommerce lenders can fund loans quickly, they may fund a smaller amount than
what you request. This is because lenders reach their comfort level after
evaluating your business’s revenue and cash flow. As with any loan, eCommerce
loans also have an expected timeframe for funding.
Due to the ease of approving eCommerce loans,
many lenders don’t require the borrower to use collateral to secure the loan.
This is something you’d typically see with SBA loans. If a lender approves you
for an eCommerce loan and you don’t have collateral, the lender is going to
look at your cash flow and revenue to make sure you can repay the loan. This is
why eCommerce loans are great for new businesses that don’t have assets to
secure traditional loans with collateral.
Even though you don’t have collateral to
secure the loan, the lender will likely have stricter repayment requirements.
Unfortunately, no loan is risk-free, and eCommerce loans are no exception. This
is because if you don’t repay the loan, the lender doesn’t have anything to go
after except your business. Since the lender doesn’t have any collateral to
collect against, they’ll most likely go after collecting the debt directly out
of your business’s bank account.
Many traditional business loans restrict how
you can use the money. For example, you may need to use the money to build out
your business’s inventory or purchase equipment. An eCommerce loan doesn’t
place restrictions on how you use the money. This is because the loan is based
on your business’s revenue and cash flow. While it’s important to repay the
loan, it doesn’t matter what you use the money for. This gives you the freedom
to use the loan money to expand your business, hire new employees, or whatever
is needed for your business to succeed.
Unlike traditional loans, an eCommerce loan
doesn’t require you to submit a business plan. While a business plan can be
helpful, it isn’t always necessary for small business loans. This is because
eCommerce lenders focus on your revenue and cash flow to determine whether
you’re approved for a loan.
Another advantage of eCommerce loans is that
they generally have more liberal terms as compared to traditional loans. For
example, eCommerce loans typically have a longer loan term (up to 36 months)
and a higher loan amount. Since lenders fund loans based on your monthly
revenue and cash flow, they’re more likely to offer longer loan terms and
larger loan amounts. At the same time, traditional lenders may offer shorter
loan terms and lower loan amounts.