Traditional funding doesn’t like ecommerce. Good. This solution is better

Updated: October 8, 2021 at 9:38 am
Banks and other traditional lenders have snubbed ecommerce businesses, but new approaches to funding are lightning fast, unsecured and won’t force you to give up ownership.


AUTHOR: Bobby Gleeson, eCommerce Funding Manager at Swoop


The ecommerce business sector is growing fast. It took 20 years from the inception of ecommerce to reach 10 percent retail market share, but this has doubled to 20 percent in the last four years. The fraction may look small, but the trend is steep and it’s not slowing down. 

Covid created a once-in-a-lifetime digital event that saw a decade of growth in just six months. Consumer habits were forced from brick and mortar stores to online spaces and with these changes came a new mindset. The ecommerce market share is predicted to continue growing as we progress into a hybrid shopping model but the consensus is that anything that can be bought online, will be bought online. 

In order to adapt to shifting consumer behaviour, retailers will need to ensure they deeply understand their customers’ preferences. There is no ‘one size fits all’ model for an effective ecommerce strategy. To succeed, it is fundamental that ecommerce sellers have adequate tools and financial resources to hand, so that they can adapt alongside their customers, maximising their potential reach and benefit while growing their businesses.


The new funding solution

Funding has historically been challenging for ecommerce companies that wish to grow their business, particularly in early stages, when companies have a limited financial history but high revenue growth numbers. Traditional avenues such as bootstrapping, crowdfunding, equity, debt, and grants can be difficult to secure and have lengthy lead times and unattainable credit scoring criteria, or even result in having to let go of a percentage of the ownership of a company. This has paved the way for ecommerce funding, which uses revenue as the primary data point for capital allocation.

Ecommerce funding has a number of names, including revenue-based finance, non-dilutive equity and royalty investment. In the end, it is a capital investment with a plan for structured repayment. As it is technically not a loan, there is no need to provide a personal guarantee, it won’t affect a company’s credit score, there are no interest rates, and the business owner retains 100 percent equity. 

Ecommerce funding has a number of advantages over the traditional capital solutions. It can be exceptionally fast to receive the money and very simple to repay, often without the need for any kind of repayment process to be managed. Once you have applied and connected your accounts to the respective lender, you may receive an offer instantly, and have the money in your account in under 24 hours. (Note: in some cases additional checks may be required which can push this timing out slightly.)  Repayments are taken directly from payment terminals as a percentage of revenue, which means that in times where the business is not making as much money, repayments are lower, and when times are good your repayments window shortens. In essence, repayments grow as you do, and don’t punish you for a slow month or two. 

Equity on the other hand can take months to get a term sheet signed as you need to get a business plan, introductions and then pitch to investors – all to give up a percentage of the company you have worked hard to build. With ecommerce funding, you retain full ownership and can get funded in a matter of days in a completely data driven process.

Debt finance requires considerable documentation, you will have to put up some form of security such as your house in case you default on payments and you need a good credit score. Compare the benefits of ecommerce: after connecting your accounts, the loan is secured against future sales which are repaid relative to your income effectively meaning you can’t default and your credit score is unaffected. 

Ecommerce funding is also non-restrictive, meaning that you can use the money for any business purpose. Funds are paid directly into your bank account and you are in control. You can buy stock, perhaps taking advantage of a one-off deal on inventory, invest in marketing, carry out refurbishments, even add a new location. Swoop is partnered with a number of lenders and each has their own unique attributes that can add value to your business where it’s needed most.


How does it work?

The investment is secured against your future payments, so a proportion of your daily income will go towards repaying the advance. This caters for seasonal businesses as borrowers only pay a given percentage of your monthly revenue. 

For the most part, the value you can expect to acquire is based on your monthly recurring revenue. Often you can top-up once you have repaid a majority of the advance and as your revenue should be higher, you may acquire a higher advance with each cycle as you continue to grow.

The benefit is that it does not accrue interest, you are given a low fixed fee at the beginning of the term (generally between six and twelve percent) and this is returned relative to your revenue.


Does my business fit the bill?

Your business does not necessarily need to be an ecommerce platform, this type of funding is also available to subscription services, SaaS, mobile applications, successful retail stores, hospitality and gaming.

As long as a portion of your sales are online and you have six months trading history with an MRR over £2,000, you are eligible for some lenders. Once you are hitting £10,000 over a period of between four and six months, you will be able to access lenders offering lower fees and start to accelerate your business at a fast pace.

If you are an early stage business that is not interested in giving a personal guarantee or clearing daunting security hurdles, this is a highly attractive solution. Equally, if you are a business that is planning on raising equity, ecommerce funding is the perfect bridging finance to allow your company to continue growing while you undertake the (often arduous) equity process.


How Swoop can help

At Swoop, we keep track of the market and lenders. We have excellent relationships with funders and try to go the extra mile to understand lender appetite so that businesses waste less time making applications that will be turned down, instead focusing on lenders that really want to lend.

It is important to remember that ecommerce is still a relatively young industry. Whether traditional stores change their offer to compete or retail further evolves into hybrid shopping, or the days of brick and mortar are numbered, there has never been a better time to get ecommerce finance than right now.

Check out ecommerce funding on Swoop’s website or sign up and let us do the heavy lifting.

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