As the Dealstruck team funds more small business loans and lines of credit, we’ve noticed some interesting trends across some rapidly growing industries, including home healthcare, internet technology, financial services, commercial cleaning, residential and commercial contracting, and e-Commerce. In this segment of Borrower Industry Focus, we highlight the pain-points and potential solutions we have found for the e-Commerce sector.
Internet Retailer reports total online spending sales from social media increased 26% from $2.62 billion in 2013 to $3.3 billion in 2014. e-Commerce businesses have learned to leverage their social presence to boost sales in hopes of generating a sustainable revenue. These social media tools are often low-cost and can help e-Commerce businesses get started. However, online retailers and web-based service firms still need capital to expand their inventory and sustain.
What does the lending environment look like for e-Commerce companies?
Financial services for e-Commerce businesses have not evolved nearly as rapidly as the businesses themselves. If lending is the driving arm for economic growth, this particular sector struggles with obtaining long-term bank financing at affordable interest rates. Although their web-based nature permits much lower overhead costs than their brick and mortar counterpart, e-Commerce businesses tend to have a limited operating history and younger management team. This dilemma sets owners up for limited financing options, as banks tend to turn them away on the basis of the bank’s own unfamiliarity with the industry, the company’s inadequate financial history, and inconsistent cash flow (especially if merchandise is involved). Moreover, banks may require borrowers to already have borrower experience in an existing venture or an active relationship with the bank. In short, banks are just uncomfortable with the entire sector.
What do e-Commerce borrowers need to demonstrate to traditional lending institutions to obtain funding? Business owners need to demonstrate:
- Financial viability and sustainability (i.e., growth),
- A strong mutual relationship with a credit card vendor and an online payment vendor, and
- An understanding of costs associated with server space and each transaction.
If banks aren’t an option, what other financing options are available for e-Commerce businesses?
Online retailers and distributors – selling through huge platforms like Amazon and eBay or on their own sites – have often had to turn to expensive cash-advance or daily-debit style options to sustain growth. Solid vendor line of credit options have yet to emerge as this new breed of online company often focuses, for cost purposes, on sourcing inventory from foreign countries or the liquidation departments of large corporations. In other cases, these companies sell specialty or niche products whose demand is less certain and a reliable vendor credit simply does not exist.
However, borrowers can turn to alternative lenders such as Dealstruck. Through Dealstruck’s amortizing loan or line of credit, e-Commerce borrowers can get inventory without exhausting their own cash reserves or maxing out their credit cards. They can keep profit margins strong by paying down their loans as the inventory turns.
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