E-commerce businesses often require significant capital investments to finance their operations, from website development to inventory purchase and logistics management to increased marketing activity to fuel growth.

While traditional bank loans and credit lines might be the initial choice, they aren’t always accessible or affordable for online businesses.

There are a number of reasons why alternative lending options offer better value to e-commerce businesses, such as a lack of collateral compared to traditional brick-and-mortar businesses, having lower credit scores or shorter operating histories, needing a faster cash influx or requiring specialised financing solutions.

In this article, I evaluate five of the most common alternative lending options for e-commerce businesses to help business decision leaders find the most suitable lending option for them…

Peer-to-peer lending platforms

· Peer-to-peer (P2P) lending platforms allow investors to see a greater ROI while businesses can enjoy lower interest rates compared to conventional loans without the need for collateral.

· Discussing the importance of a good credit score for P2P borrowing and how this will impact rates.

· Addressing the riskier nature of P2P lending due to a lack of regulation and borrowers being more likely to default on repayments than traditional bank loans.

Invoice financing:

· How invoice financing provides businesses quick access to cash without complicated and time-consuming applications.

· Exploring how invoice financing offers suppliers more protections than recourse financing by placing the responsibility of chasing the buyer for payment on the finance provider.

· Invoice financing providers will typically only work with B2B brands, so will not suit all e-commerce businesses.

Merchant cash advances:

· Repayments are made based on the percentage of future sales with no minimum payments which can be beneficial for e-commerce businesses during slow periods.

· How this method of lending puts struggling businesses at greater risk of entering a debt cycle, with APR significantly higher than traditional loans

Revenue-based financing:

· How revenue-based financing can benefit growing e-commerce businesses that need a cash injection without having to sacrifice equity.

· Discussing the benefit of flexible repayment terms that can accommodate a company’s revenue cycle.

· Why ‘flat fee’ agreements might be attractive in the short-term but are typically more expensive over long periods compared to traditional loans.

Asset-based lending

· Addressing the advantages to this method of financing: it is more accessible for companies with a lack of cash flow or cash assets, of credit history or poor credit score, has more flexibility in repayment terms compared to traditional loans and typically lower interest rates.

· Discussing why asset-based financing wouldn’t suit companies without a certain level of assets to serve as collateral and wouldn’t be a suitable long-term financing solution.