Guide to Getting a Business Loan for
E-Commerce Businesses

Small business loans/term loans

One of the most common financing options for small businesses—including e-commerce businesses—is securing a small business loan, either through a traditional lender (like a bank, credit union, or traditional financial institution) or a non-traditional lender (like an online lender).

The most common small business loan available to business owners is a term loan. Term loans are loans that have clearly defined parameters (or “terms;” hence the name). That includes loan amount, interest rates (whether the interest rate is fixed or variable), and repayment schedule.

Is a small business loan/term loan right for your business?

As mentioned, term loans are one of the most common and widely available types of small business funding. But the actual terms of a term loan can vary widely based on a variety of factors, including your business history, creditworthiness and credit score, and how you plan to use the loan proceeds. (For example, if your e-commerce shop has been operating for five years, processes a high volume of sales each month, and has perfect credit, it’s probably going to be easier to secure competitive terms on a loan than a brand new e-commerce shop that doesn’t have an established track history of success.) Loan terms can also vary by lender—so if you do decide to pursue a term loan for your online business, plan to shop around to different lenders to see who offers the best terms on their loan package.

SBA Loans

The U.S. Small Business Administration is one of the best resources for small businesses looking for business financing to move their companies forward—and that includes e-commerce businesses.

The Small Business Administration has a variety of loan programs and financing options available to small business owners that could be the right fit for your online business, including:

7(a) Program

The 7(a) Program is the SBA’s primary loan program—so, if you’re looking to secure financing for your e-commerce business through the SBA, this can be a good place to start.

The 7(a) loan program offers a variety of small business loans to business owners through a network of SBA-approved lenders (which include traditional banks, credit unions, and other financial institutions). Depending on your needs, some of the SBA loans available through the SBA 7(a) program you may want to explore for your e-commerce operation include:

• Standard 7(a)

• 7(a) Small Loan

• SBA Express Loan (with SBA Express Loans, borrowers receive a response to their loan application from an SBA Express Lender with a 36 hour time frame)

• International Trade

• Export Express

• Export Working Capital

Depending on what type of loan you apply for, maximum loan amounts range between $350,000 to $5 million. Other terms and conditions (including interest rates, repayment terms, and eligibility requirements) also vary by loan type.

Microloan Program

Sometimes, you just need a little extra financing to hit your goals and take your e-commerce business to the next level. And, in that case, you may want to explore the SBA’s Microloan program. Through the program, the SBA issues loans of up to $50,000—with most businesses borrowing much less (according to the SBA, the average microloan is $13,000). You can use the proceeds from your microloan for a variety of business expenses, including working capital and inventory for your e-commerce shop.

Interested in learning more about a microloan and if that might be best for your business? Check out this helpful guide on everything you need to know about SBA microloans.

504 Loan Program

Obviously, e-commerce businesses are, by definition, online businesses—but if you’re looking to expand your e-commerce operation outside of the digital space and into the real world (for example, purchasing a new office space to expand your team or outfitting your current office with new furniture and equipment), you may want to explore a 504 loan.

The SBA’s 504 loan program is targeted at small businesses that need financing to cover “fixed assets for expansion or modernization.” This includes purchasing commercial real estate, renovating an existing building (like office space), buying land to expand a business, and purchasing equipment and/or furniture. 504 loans are federally guaranteed for up to $5 million dollars and businesses can apply for the loan program through Certified Development Companies (CDCs), a network of SBA-approved lending partners.

Is an SBA loan right for your business?

As mentioned, the SBA can be an incredible resource for small businesses in need of financing—but they’re not the right fit for every business.

SBA loans can be harder to secure than other types of small business loans; because the loans are federally guaranteed, they have stricter eligibility requirements, a more in-depth application process, and can take longer to get approved and receive your financing. So, if your e-commerce operation is a brand new business or you need funds immediately, the SBA might not be your best option. But if your online business is well-established and you can prove you’re an ideal candidate for a loan? SBA loans can be a great way to go.

Bridge loans

Sometimes, you need immediate financing to keep your e-commerce business moving forward through a temporary financial setback. In those types of situations—when you a) need funding immediately, and b) have the means to pay that funding back quickly—you may want to consider a bridge loan.

Bridge loans are a short-term financing option that provides immediate financial assistance to small businesses to help them navigate a dip in cash flow, loss of revenue, or other financial challenge. Bridge loans are essentially short-term loans meant to “bridge” a temporary financial gap—and get your e-commerce operation to the other side.

Is a bridge loan right for your business?

The major draw of bridge loans is that the entire process is quick; you can apply for a loan, get approved for a loan, and get access to those loan funds in a significantly shorter time frame than traditional loans or other financing options. So, if you’re in need of cash—and in need of it fast—a bridge loan can be a good option.

But that quick access to funding comes at a cost. Bridge loans often have much higher interest rates and fees than other types of small business loans. And because they’re only meant to provide financing in the short term, they also have much shorter repayment terms—typically 12 months or less. So, if you’re considering a bridge loan, it’s important to be sure your online business will have the revenue and cash flow necessary to repay the loan within the shorter time frame.

Business line of credit

Loans aren’t the only financing options for e-commerce business owners. If you need financing over a longer period of time—for example, as you get your e-commerce operation off the ground or expand into new markets—you might consider a business line of credit.

A business line of credit is a revolving line of credit that functions in the same way as a personal line of credit. When you open a business line of credit, your e-commerce business gets access to a fixed amount of capital. You can use as much or as little of your available capital to cover expenses for your e-commerce business; you’ll only pay interest on your outstanding balance (or the capital you use)—and once you pay off that balance, those funds are immediately available to use again, if you so choose.

Just like other types of small business financing, the amount of credit you’re approved for—and the interest rate—will depend on a variety of factors, including your creditworthiness, business history, and lender eligibility requirements.

Is a business line of credit right for your business?

A business line of credit can be a great fit for your e-commerce business if you want to have financing available when you need it—but aren’t sure how much you’ll actually need to use and/or when you’ll need to use it. It can also be a good fit if you have ongoing expenses you need financing for, like payroll or marketing expenses. Plus, it’s often easier to get approved for a higher loan amount at a lower interest rate than other forms of business credit (like a business credit card)—making it a more economical option.

Just make sure to use your line of credit responsibly; just like a personal line of credit, you’re responsible for paying interest on your balance—and if you max out your line of credit, it could put your business finances in a precarious position.

Business credit card

It can be challenging for e-commerce startups to secure financing; to a lender, providing financing to a new business can feel like a risk. Your business doesn’t have established credit, you don’t have a proven track record of financial success, and, because you’re just getting things off the ground, there’s no guarantee you’ll find that success moving forward—and, depending on the lender, it might be a risk they’re not willing to take.

In that situation, your best financing option for your business could be a business credit card.

A business credit card functions similarly to a personal credit card; you secure the card with an available credit limit and interest rate—then pay interest on any outstanding balances. Once you pay off your balance, those funds are immediately available for you to use again.

Is a business credit card right for your business?

As mentioned, business credit cards can be a solid financing option for new e-commerce businesses; not only do they help you get the financing that you need (whether that’s for ongoing or upfront costs), but they also help you establish business credit, which can be helpful if you do decide to pursue a loan at some point in the future.

But, similar to a business line of credit, it’s important to be careful with how you use your credit card. Shop around for the best interest rate (many business credit cards offer a 0% APR introductory rate for six months to a year), be strategic with your spending, and be careful not to accrue more debt than your business can reasonably pay off.

Merchant cash advances

When you run an e-commerce business, it’s extremely likely that the majority of your sales will be processed on credit cards. And, if that’s the case, an alternative financing option that you may want to explore? Merchant cash advances.

Merchant cash advances work differently from loans, business credit cards, or other types of small business financing. With merchant cash advances, the lender provides a cash advance based on your business’ credit card sales. They give you the capital up front in the form of a cash advance—and then you pay back that advance, with interest, with a percentage of your future credit card sales.

There are two terms that you need to know when it comes to merchant cash advances—holdback and factor rate.

Holdback is the percentage of future sales that are going to be withheld in order to pay back the cash advance—while the factor rate is the percentage above the cash advance total the borrower will need to pay back. Both the holdback and the factor rate are agreed upon prior to the merchant cash advance.

For example, let’s say you apply for a merchant cash advance of $20,000 with a factor rate of 30% and a holdback of 15%. That means that you would be responsible for paying back $26,000 total—and that 15% of all future credit card sales will be held back by the lender/advance company until the $26,000 is paid in full.

Is a merchant cash advance right for your business?

Merchant cash advances have a few pluses; the credit requirements tend to be looser, and the application process easier and faster than other types of financing options. But the factor rate is generally much higher than interest rates on traditional financing options, often up to 40 percent—and you’re giving up a percentage of your future sales in order to secure the financing, which could cause a cash flow issue in the future.

Before you agree to a merchant cash advance, make sure you understand the terms, shop around for the most competitive offers, and are confident that you can still keep your e-commerce business up and running without the percentage of future credit card sales you’ll be forfeiting in order to pay back the advance.