Ecommerce Funding

Ecommerce Funding: The Complete Guide to All Your Options

ecommerce financingE-commerce financing is a crucial aspect of the ever-growing Ecommerce industry. As online businesses continue to rise, the competition becomes fiercer, making it harder for companies to stand out in the digital marketplace.

To gain an edge and reach a broader audience, entrepreneurs need access to sufficient funds to support marketing efforts, hire skilled teams, and purchase enough inventory to meet demand.

Scaling operations requires a cash injection, and that’s where E-commerce financing comes into play. Before diving into the funding process, it’s essential for business owners to understand the available options.

There are various E-commerce funding models to explore, each offering unique advantages. By carefully considering these options, entrepreneurs can make informed decisions that align with their business goals and capitalize on the vast potential of the Ecommerce world

What is ecommerce financing?

Ecommerce financing refers to the specialized financial solutions and capital investment opportunities designed to support online businesses in their growth and expansion efforts.

As the Ecommerce industry continues to thrive, businesses often face challenges in accessing sufficient funds to scale their operations, launch marketing campaigns, hire skilled personnel, and maintain ample inventory levels. Ecommerce financing steps in to bridge this gap by providing entrepreneurs and online retailers with the necessary funds they need to flourish.

Unlike traditional business loans, ecommerce financing may offer unique features, such as being equity-free, where businesses can secure funds without giving up ownership stakes.

Instead, these financing options typically involve agreements to repay the capital with a percentage of future sales or a fixed fee. Such flexible and tailored financial solutions cater to the specific needs of Ecommerce businesses, empowering them to seize opportunities, stay competitive, and thrive in the dynamic digital marketplace.

How does funding for ecommerce businesses work?

Funding for ecommerce businesses works by providing the necessary financial resources and capital to support the growth and operations of online retail ventures.

Ecommerce businesses often require funding to expand their product offerings, scale marketing efforts, enhance website functionality, improve customer experience, and secure enough inventory to meet demand.

There are various funding options available to ecommerce entrepreneurs, each with its own terms and conditions.

These options may include:

  • traditional bank loans
  • venture capital investments
  • angel investors
  • crowdfunding campaigns
  • merchant cash advances
  • specialized ecommerce financing platforms

Depending on the chosen funding model, businesses may be required to repay the funds with interest, share a percentage of future sales, or give up a portion of ownership through equity stakes.

All the funding options available to ecommerce businesses

Embarking on a comprehensive exploration, we delve into the top funding alternatives embraced by digital visionaries and online entrepreneurs

1. Merchant cash advance

Specially tailored for e-commerce and online business, merchant cash advance providers offer a convenient financial solution, granting clients access to credit and debit card turnover for up to 6 months, with borrowing amounts ranging from £5,000 to £300,000. The repayment process involves daily deductions of approximately 15% from credit and debit card receipts, making it a flexible option for businesses in this sector.

The advantages of merchant cash advances

  • Prompt infusion of funds for your business, ensuring quick access to the cash you need.
  • The application process is a breeze; all that’s required is submitting the last three months’ credit card statements.
  • Enjoy the flexibility of no fixed payment amounts, allowing you to adapt your repayments according to your business’s performance.
  • Utilize the funds as you see fit, granting you the freedom to invest in various aspects of your business, tailored to your specific needs

The disadvantages of merchant cash advances

  • Be cautious of the potential expenses, as merchant cash advances can prove to be significantly pricier, ranging from 15% to 20% of the borrowed amount, in contrast to revenue-based funding, which typically costs between 6% and 12%.
  • Keep in mind that these advances offer a short-term remedy, making them ideal for immediate financial needs but requiring a longer-term plan for sustained stability.
  • Exercise caution when financing future sales, particularly during market instability, as this approach may carry inherent risks that need careful evaluation and contingency strategies.

Additionally, financing future sales through this method can pose risks, particularly if the market experiences instability. As such, entrepreneurs in the online industry should weigh these pros and cons carefully before opting for this financing option.

2. Lines of credit

Lines of credit emerge as a highly effective and favored financing option, especially for thriving ecommerce stores. Also known as alternative overdrafts or revolving credit, lines of credit offer the advantage of providing accessible funds that you can draw down as needed. Depending on your turnover level, a fixed credit limit is established, offering a versatile range from as little as £2,000 to as substantial as £1,000,000.

Imagine encountering a special discount from one of your suppliers on a highly sought-after product by your customers. To capitalize on this opportunity, you need to place a significant order. While your sales projections indicate that you can clear the stock within 2-3 months, the immediate cash is unavailable.

With a line of credit, you can swiftly access the necessary funds, enabling you to seize the discount and replenish the credit once you’ve sold some or all of the stock. This dynamic process works much like a credit card, empowering you to manage your finances flexibly and respond promptly to favorable business opportunities

The advantages of lines of credit

  • Benefit from cost-effectiveness as you’re only charged interest on the credit you utilize. For instance, if you draw down £50,000 from your credit limit of £250,000, you’ll only pay interest on the £50,000 in use.
  • Enjoy the advantage of low interest rates associated with lines of credit, making them an attractive and affordable financing solution for your business needs.
  • Unlock versatility in funding usage as lines of credit extend beyond purchasing stock; you can leverage them for effective cash flow management, ensuring your business maintains its financial stability and flexibility.

The disadvantages of lines of credit

  • Establishing a line of credit might pose challenges if your trading history is less than two years, as lenders often seek a proven track record to assess your creditworthiness.
  • Encountering rapid business growth can lead to difficulties in convincing lenders to raise your credit limit, as they may be cautious about extending further credit without substantial historical data.
  • If your business turnover isn’t substantial, you might face limitations in the credit amount offered, as lenders typically base credit limits on revenue figures, potentially hindering your ability to access larger sums

3. eCommerce Business loans

At the forefront of an entrepreneur’s mind when seeking financial support is an e-commerce business loan for your online business from the local bank often emerges as the initial consideration. However, it’s essential to recognize that banks have a historical inclination towards risk aversion, making lending to start-ups or early-stage internet businesses quite challenging.

The likelihood of securing the desired business loan amount becomes even lower, leaving entrepreneurs facing significant obstacles. As borrowing levels surpass the £25,000 mark, banks tend to grow increasingly uneasy, resulting in more complex and intricate loan application processes. Navigating these hurdles can be daunting, necessitating entrepreneurs to explore alternative financing options better suited to the unique needs and circumstances of their e-commerce business ventures

The advantages of e-commerce business loans

  • E-commerce business loans from banks often come with competitive interest rates, offering entrepreneurs a cost-effective financial solution to support their ventures.
  • By adhering to regular repayment schedules, businesses can confidently navigate their loan obligations, knowing that banks cannot demand immediate full repayment, providing a sense of stability and financial predictability.
  • Experience the freedom and versatility of these loans, enabling entrepreneurs to allocate the funds strategically across their business needs without cumbersome restrictions, fostering efficient growth and development.

The disadvantages of e-commerce business loans

  • Embark on meticulous preparation by crafting a comprehensive business plan and accurate cash flow forecasts, requirements that banks often seek before considering loan approvals.
  • In the pursuit of securing a business loan, it’s important to be aware that banks may request personal assets as security, emphasizing the significance of collateral in the loan application process.
  • For entrepreneurs seeking substantial financial backing, acquiring a large cash injection through banks can be a challenging endeavor, necessitating a well-structured approach and a thorough understanding of the lender’s criteria and risk assessment procedures.

4. Bank overdraft

On a contrasting note, securing overdrafts proves to be relatively straightforward for ecommerce and SaaS providers, particularly once they establish a solid 6-month track record with their bank. The process involves paying a small annual fee to the bank, granting access to a line of credit linked to their account on a monthly basis.

Overdrafts primarily serve as a cash flow management tool; however, they might not be substantial enough for stock purchases or ambitious expansion endeavors in most cases. Generally, the overdraft limit is typically capped at around 1.5 to 2 months’ turnover, and unless the business operates at a multi-million pound scale, the granted amount is likely to be limited to a maximum of £25,000.

Nonetheless, overdrafts remain a viable option for businesses seeking flexible financial support to navigate cash flow fluctuations and day-to-day operational needs.

The advantages of bank overdrafts

  • A valuable asset for any business, overdrafts prove to be useful financial tools offering versatile support.
  • Overcoming small cash flow challenges becomes more manageable with the aid of overdrafts, providing timely assistance for businesses during temporary financial setbacks.
  • Enjoy the advantage of borrowing precisely the required amount through overdrafts, potentially resulting in cost-effectiveness compared to loans where businesses often borrow more than they immediately need, incurring higher interest costs.

The disadvantages of bank overdrafts

  • Overdrafts offer a flexible credit option, but their availability can be at the bank’s discretion, subject to their terms and conditions.
  • It may prove challenging to secure overdrafts exceeding £25,000, which could limit the borrowing capacity for larger financial requirements.
  • While overdrafts are convenient for addressing various business needs, they might not be a suitable replacement for loans when substantial funds are required for purchasing stock or achieving significant business expansion.

5a. Revenue based funding (variable collection)

Revenue-based funding, also known as revenue-share financing, stands out as an optimal choice tailored for the thriving realm of Ecommerce businesses. With the capacity to secure loans ranging from £10,000 to £1,000,000 in a remarkably swift 24-hour turnaround, entrepreneurs can rapidly fuel their growth aspirations. The unique characteristic of this financing method lies in its repayment structure, where the lender collects a proportion of the company’s turnover each month, typically ranging from 5% to 25%, until the loan is fully repaid.

Unlike traditional funding approaches, revenue-based financing transcends the need for extensive business plans or pitch decks, as lenders bypass credit score assessments and focus on key integrations with platforms like Stripe, Shopify, Facebook, and accounting software such as Xero or QuickBooks.

Repayment of revenue-based finance is equally dynamic, fluctuating in tandem with the revenue generated. During profitable months, entrepreneurs witness higher repayments, accelerating their loan repayment progress. Conversely, slower months offer a degree of flexibility, granting much-needed breathing space for businesses.

While this financing option proves highly advantageous for fast-growing ventures that can readily absorb the costs, it’s essential to consider potential challenges during prolonged periods of stalled growth, which may exert pressure on cash flow. An exemplary success story illustrating the effectiveness of revenue-based funding is fashion brand Hedoine. Their decision to secure £50,000 in funding to bolster campaigns on Instagram and Facebook led to an astounding 1,106% surge in sales during the initial quarter of 2022.

5b. Revenue based funding (flat fee)

An alternative take on revenue-based funding is the “flat fee” variation, which introduces a distinctive approach to loan repayment. In this setup, businesses commit to paying a fixed percentage of their turnover every month for a duration of up to 5 years, with the repayment sum facilitated through a modest 1-3% of their monthly revenue. As a result, the monthly repayments under this model are generally lower compared to the variable collection approach.

However, it’s important to consider the potential downside of the “flat fee” version. While the lower monthly repayments may initially seem appealing, hitting or surpassing growth targets can lead to a significant drawback.

In such cases, the overall amount repaid over the loan’s term often surpasses what would have been paid under the variable collection model. This aspect highlights the importance of carefully evaluating business projections and potential growth rates before opting for this particular funding structure.


6. Equity investors

Equity funding has proven to be a vital catalyst for the growth of numerous prominent ecommerce and SaaS companies, unlocking their remarkable potential. In our comprehensive growth capital article, you can explore three distinct types of equity funding, each presenting unique benefits for businesses seeking financial support.

Embracing equity funding allows entrepreneurs to secure a broad spectrum of investment amounts, ranging from £10,000 to substantial sums reaching hundreds of millions of dollars. The fundamental concept behind equity funding revolves around offering a portion of your company’s equity in exchange for a much-needed cash injection.

A noteworthy advantage of this funding approach lies in the caliber of investors it attracts. Seasoned experts in their respective fields, these investors boast an impressive track record of nurturing diverse companies to achieve remarkable growth. By welcoming these investors aboard, you gain access not only to their invaluable knowledge and expertise but also to their extensive professional networks.

This connection introduces countless new business development and growth opportunities, serving as an invaluable asset to propel your company to new heights. The combined potential of equity funding and the guidance of experienced investors can pave the way for extraordinary growth and success in the dynamic world of ecommerce and SaaS ventures

The advantages of equity investors

  • Welcome a valuable cash injection from seasoned experts who invest in your venture, empowering you with the financial resources to drive growth and success.
  • Embrace the tremendous advantage of accessing a broader network of experts and seasoned professionals through your investors, opening doors to new opportunities and strategic partnerships.
  • Gain invaluable input and guidance from individuals who have navigated similar entrepreneurial paths before, leveraging their firsthand experience to make informed decisions and steer your business towards prosperous outcomes.

The disadvantages of equity investors

  • In the pursuit of equity funding, it involves parting with a portion of your company shares to investors, allowing them to become stakeholders in your business.
  • As your company grows, investors may seek to exert more influence and representation by installing their own individuals on the board, leading to a shift in decision-making dynamics.
  • Throughout the various rounds of investment, you may find yourself relinquishing substantial control and influence, as investors become more involved in shaping the company’s direction.
  • Preparing for equity funding requires meticulous planning and a detailed business plan, including flexible financial forecasts, to satisfy the expectations of potential investors.
  • Keep in mind that drawing up the necessary legal contract can involve significant legal fees, adding to the financial considerations of the equity funding process.

7. Crowdfunding

Embraced globally, crowdfunding platforms have raised an impressive £304 billion, with the UK contributing £10 billion to this total. Among its enthusiasts, crowdfunding finds particular favour with start-up and early-stage ecommerce and SaaS companies, where funding needs range from £10,000 to £10 million.

A compelling example of crowdfunding success is Macaw, a web design tool that surpassed its original £75,000 target, raising an astonishing £276,000 within just 24 hours of launching their campaign.

Crowdfunding platforms offer a unique opportunity for small investors to support businesses that resonate with them. In return for their investment, these investors receive a small shareholding in the company, akin to equity investors. However, the key difference lies in the level of involvement – small investors typically do not interfere with the company’s operations or attempt to influence its management.

This financing avenue empowers entrepreneurs to maintain full control over their businesses, managing them according to their vision and preferences. Notably, not all crowdfunding platforms require businesses to relinquish any shares. Some, like Indiegogo and Kickstarter, offer investors rewards in the form of the company’s products or services, fostering a sense of collaboration and engagement.

While some crowdfunding platforms, such as Funding Circle, may provide loans to businesses, they generally prefer those with at least two years of trading history and may require a personal guarantee for added security. Overall, crowdfunding presents an exciting path for aspiring businesses to secure funding while building a supportive network of backers who believe in their vision and potential.

The advantages of crowdfunding 

  • Enjoy the advantage of retaining full control over your business, as crowdfunding investors typically do not assert any control or influence in your company’s operations.
  • Leverage the potential for swift funding as crowdfunding allows for rapid cash injections, particularly when your campaign gains momentum and attracts significant interest.
  • Capitalize on the opportunity to raise public awareness of your business during the crowdfunding process, as campaigns often attract attention and curiosity from a broad audience, boosting your brand visibility and recognition.

The disadvantages of crowdfunding

  • Embrace the reality of intense competition in the crowdfunding space, where only 44% of Kickstarter projects achieve their funding goals, highlighting the need for a well-executed campaign.
  • Recognize the importance of allocating a significant budget to marketing your crowdfunding campaign to achieve favorable outcomes, as successful campaigns often require substantial efforts to attract backers.
  • Exercise caution in making promises during your campaign, as failure to deliver on commitments can lead to negative publicity and damage your brand reputation, underscoring the significance of delivering on promises made to backers.

8. Grants

While government-backed grants may appear promising, the reality is that they are not abundantly available for businesses. Moreover, the sums involved in these grants tend to be relatively small, limiting their impact. For instance, consider the micro-business ecommerce grant in Northern Ireland, where the maximum grant amounts to £10,000, and applicants are required to have 20% of that amount as spare cash to be eligible.

In some cases, there are larger grants available, but they are often highly specialized and targeted towards niche industries or specific areas. An example of this is a grant of up to £1 million awarded in the form of a contract to supply.

This particular grant is reserved for companies that play a pivotal role in waste reduction, recycling, and the promotion of reusing specific resources and products. However, due to its niche focus, it excludes a vast majority of businesses from being eligible to apply.

Given the limited availability and specialized nature of many government-backed grants, they may not be a viable funding option for most companies, leaving businesses with the need to explore alternative funding models to support their growth and development.

The advantages of grants

  • Government-backed grants provide a unique advantage as they do not require repayment, relieving businesses of any debt burden.
  • Entrepreneurs can secure funding through grants without the need to relinquish any control over their business, maintaining full ownership and decision-making authority.
  • The flexibility offered by grants allows businesses to operate in alignment with their vision and preferences, empowering them to run their companies according to their unique strategies and goals.

The disadvantages of grants

  • Discovering suitable government-backed grants, especially niche ones, can be a challenging task, requiring dedicated effort and research to identify the right funding opportunities.
  • The application process for grants can be arduous, often involving extensive paperwork and documentation, demanding considerable time and attention to detail.
  • Despite investing substantial effort in the application, receiving the grant is not guaranteed, as numerous businesses may be competing for the same funding, making the selection process highly competitive and unpredictable.

9. Invoice factoring

Numerous ecommerce businesses have thrived by leveraging prominent platforms like Amazon and Zulily to showcase their products to vast audiences. In return for accessing the platforms’ extensive user base, businesses pay a modest transaction charge for each sale, along with hosting fees in some cases. However, a lesser-known aspect is the delayed payout that these third-party platforms may enforce, holding onto funds for up to 30, 60, or even more days.

This delay can hinder a business’s cash flow, preventing them from utilizing the earnings promptly to pay staff, restock inventory, or invest in growth opportunities for several weeks. To tackle this challenge, invoice factoring emerges as a valuable solution. By submitting an invoice to the factorer simultaneously with the one sent to the third-party platform, businesses receive up to 90% of the invoice value deposited into their bank accounts the following day. Once the platform clears the payment, the factorer releases the remaining amount, deducting a small fee for their services.

Invoice factorers often set a limit on the value of invoices they handle, typically around one month’s turnover. However, as businesses establish a reliable relationship with the factorer and experience increased turnover, the limit can be adjusted to accommodate their growing needs, providing a practical and flexible financial solution for ecommerce businesses facing delayed payouts on third-party platforms.

The advantages of invoice factoring

  • Embraced by both small businesses and banks, invoice factoring presents a lower-risk financing option for all parties involved.
  • Enjoy swift access to funds through invoice factoring, bolstering your cash flow and ensuring financial stability.
  • Access financing without incurring debt, as invoice factoring allows you to leverage your outstanding invoices to secure immediate cash, without taking on additional financial liabilities.

The disadvantages of invoice factoring 

  • e mindful of the impact of fees charged by the factorer, as they can reduce your overall profit margin, affecting the net earnings from your invoices.
  • In the event that a platform declines to pay an invoice, the responsibility may fall on you to settle the outstanding amount with the factorer, highlighting the importance of understanding the risks involved.
  • Prepare for the possibility of offering personal assets as security, as some factoring companies may request collateral to mitigate their risk, underscoring the need for careful consideration before opting for invoice factoring as a financing solution.
  • Can only use factoring is selling to another business – B2B

10. Asset-based lending

Asset-based lending is a versatile financing option that enables e-commerce businesses to acquire machinery and equipment, regardless of their cost, ranging from affordable items valued at £1,000 to more substantial investments worth £100,000. Instead of paying the full amount upfront, businesses make manageable monthly payments towards the equipment. This funding solution is particularly advantageous for online shops that manufacture their products, empowering them to expand production capabilities and meet increasing demand.

For online businesses seeking specific machinery to boost their productivity, many equipment and machinery sellers collaborate with finance companies to provide asset-based lending options to their customers. Simply approach the seller with your desired equipment and inquire about the available finance options tailored to your needs.

Furthermore, certain asset finance arrangements offer the added benefit of allowing businesses to upgrade leased machinery and equipment to newer models after a predetermined period, typically every three years. This feature ensures that businesses can maintain state-of-the-art equipment, thereby enhancing efficiency and staying competitive in their respective markets.

The advantages of asset-based lending

  • Gain access to essential machinery and equipment that might otherwise be unaffordable to purchase outright, enabling your business to meet its operational needs effectively.
  • Asset-based lending offers a faster and simpler application process compared to traditional bank loans or seeking investors, providing a more expedited route to securing the necessary funds.
  • Enjoy the advantage of lower interest rates typically associated with asset-based lending, making it a cost-effective financing option compared to other funding methods.
  • Certain asset-based financing arrangements allow for machinery and equipment upgrades to the latest models after a designated period, ensuring your business stays technologically up-to-date and maintains optimal productivity levels.

The disadvantages of asset-based lending

  • While asset-based financing allows you to utilize the equipment, it’s essential to note that ownership remains with the financing company throughout the repayment period.
  • Failing to maintain timely repayments may result in the equipment being repossessed by the financing company, emphasizing the importance of meeting payment obligations.
  • Asset-based financing companies have specific criteria and expectations for providing the equipment, necessitating compliance with their requirements and documentation to facilitate the financing arrangement.

Which ecommerce business funding solution is right for you?

When contemplating the suitable types of ecommerce funding for your business, take into account the following factors:

  • Funding Amount: Determine the exact amount of funding you require to meet your business objectives effectively.
  • Value Addition: Assess how the allocated funds will contribute to the growth and advancement of your business, ensuring that the spending aligns with your strategic goals.
  • Repayment Plan: If you opt for debt-based funding, establish a clear and viable plan for repaying the borrowed money within the agreed-upon terms.
  • Investor Terms: For equity-based funding, carefully consider the terms and conditions you’d be comfortable with while working with potential investors, ensuring they align with your long-term vision for the business.

Frequently asked questions

What is eCommerce finance?

eCommerce finance is a funding solution that provides business loans to web-based merchants (eShops). eCommerce lending helps online sellers grow, cover marketing expenses and increase sales.

Can I get loan for eCommerce business?

Yes, you can get loan for eCommerce business if your business is registered in the United Kingdom


In conclusion, e-commerce financing plays a vital role in the growth and success of online businesses. With the diverse funding options available, entrepreneurs can access the much-needed capital to scale their operations, invest in marketing, and manage cash flow effectively. From revenue-based funding to equity financing, and from lines of credit to government grants, each approach offers its own benefits and considerations.

If you’re an e-commerce business owner looking to secure funding for your venture, take the first step towards financial empowerment by exploring the funding solutions that best suit your needs. To discover how you can access the right financing option tailored to your business requirements, take advantage of our online enquiry form.

Our expert team is here to guide you through the funding process and help you take your e-commerce business to new heights. Complete the online enquiry form today and let us assist you in realizing your business goals.

Business Finance Expert at PDQ Funding | + posts

Lee Jones is a seasoned Business Finance Specialist with over two decades of invaluable experience in the financial sector. With a keen eye for market trends and a passion for helping businesses thrive, Lee has become a trusted advisor to countless organizations seeking to navigate the complexities of finance.