As sales grow, so do operations and customer demand. Remember, any type of delay can contribute to a loss of sales. Likewise, poor customer experience is a sure way to discourage consumers from purchasing from your business again. Whether it’s to invest in performance metric tools, new delivery options, or to simply hire more staff, working capital gives your business the flexibility to get the help you need when you need it.
Uninterrupted Business Momentum
Just as with seasonal surges, e-commerce stores have to prepare for slow seasons. For example, sweater sales will slow during the summer season and vice versa for swimwear. If your products are season-based, working capital can be the financial cushion you need to keep your business running, such as ads for off-season discounts and website updates.
What Are Some Other Scenarios Where Working Capital Can Help Grow Your Business?
As with any business, e-commerce sellers have to account for hiccups in business performance. According to a Federal Reserve Bank report, 40% of companies struggle to pay operating expenses. Even large-scale businesses rely on working capital to avoid pitfalls.
As an e-commerce business, here are some common scenarios where working capital can help:
Marketplace Rankings
If you’re selling on Amazon, you know how much work it takes for your products to rank high in search results: excellent customer retention, conversion rate, relevancy factors, and the list goes on and on. This requires significant time and money for professional images, fast shipment, engaging product descriptions, responding to customer concerns, inventory replenishment, and more. Without taking the time to really invest in developing a marketplace presence, your ranking efforts (and inevitably sales) can take a hit.
Crisis Management
While seasonal peaks are sometimes predictable, a crisis is anything but. The pandemic of 2020 was a perfect example. Even though e-commerce sales experienced a 40% growth during the year, backorders, customer complaints, and lack of employees were also at an all-time high. This is where working capital once again proved crucial, enabling many retail and fulfillment centers to perform a much-needed hiring surge to help navigate the unexpected.
Now that you have an idea of how to use working capital to get maximum ROI for your business, let’s compare the different ways you can access it.
Working Capital for E-commerce: Bank Loans vs. Credit Limits
Even if your e-commerce business qualifies for a traditional loan, such as through a bank or traditional lender, it’s still a good idea to take the time to compare terms with newer, alternative sources of e-commerce funding.
Below is a quick summary of key differences between traditional bank loans and credit limits from a specialized e-commerce lender.
- Credit Impact
Since the bank underwriting process uses credit factors, applying for a bank loan can negatively impact your credit score. Alternatively, many online funding providers don’t require a credit score and will analyze the company’s overall performance instead.
- Prepayment Penalties
Banks intend to make money from interest rates on their loans. As a result, paying off your loan early may come with a fee. On the contrary, many alternative working capital solutions and lines of credit allow you to borrow as needed and repay without penalty, as long as it’s within the agreed payback terms.
- Fund Receival Time
Most e-commerce businesses that request funding need it sooner rather than later. While a bank loan approval process can take at least three months, online funding options use performance-based metrics that can result in next-day approval.
Keep in mind that not all working capital solutions are the same, even if they’re from an online lending platform. Terms vary depending on the company, which brings us to our next point. As with every financial decision you make, always take the time to do your due diligence so you can make the best choice for your business.
What to Look for When Choosing a Line of Working Capital or Credit Limit Solution
The most important criterion when choosing a working capital provider is that they cater to e-commerce customers. A provider who understands the online selling experience will most likely offer:
- Multiple funding solutions to fit your business needs
- Flexible repayment options
- Qualifications that are reasonable for e-commerce stores
E-commerce is continually evolving. An ideal funding provider will be able to keep up with the changing e-commerce ecosystem and adjust its funding options to keep pace with those changes.
Meet SellersFunding’s Credit Limit Solution: Flexible Working Capital Designed for E-commerce
At SellersFunding, e-commerce is in our DNA.
Our funding solutions cater solely to e-commerce sellers like you. Through the SellersFunding Credit Limit, we provide up to $1 million in accessible working capital, with the flexibility to withdraw as needed. We connect with Amazon, Shopify, and several other major marketplaces, so you can receive your working capital and get back to business in as little as 48 hours.
Unlike most funding organizations, at SellersFunding we look at multiple factors when defining our proposals to offer fair, flexible, and affordable working capital solutions that will actually help you grow. In fact, over 12,000 of our clients have experienced an 85% average increase in sales in just one year after partnering with us.
Apply for a Credit Limit today and see how easy it can be to get the working capital you need.
