What's the Best Way to Fund Your eCommerce Business?

April 3, 2021
2 min read
What's the Best Way to Fund Your eCommerce Business?

In this article

Growing Shopify sellers usually struggle with cash flow at some point or another. It’s a balancing act between cash coming in and out of your business as you fuel your growth.

To help with cash flow, you might need to look to outside financing to help. You can use it to invest in that next round of inventory, keep running marketing ads and campaigns, or pay off expenses like payroll and shipping costs.

The problem? Getting access to capital as a new or growing eCommerce business can be tough. You don’t always have the business history to qualify for traditional loans. But, you also might not be aware of alternative financing options that you can take advantage of.

Small Business Struggle with Cash Flow

Last year, 10 years of eCommerce growth happened in just 3 months at the height of the pandemic.

And, more business owners than ever turned to online channels to sell. In fact, Shopify reported that new stores created on their platform grew 71% in Q2 2020 compared to Q1 2020, with a record number of merchants added in Q3.

But the reality is that many new small businesses will fail. About 20% of U.S. small businesses fail within their first year. By the end of their fifth year, roughly 50% have closed their doors. After 20 years, only around a third of businesses have survived.

Small businesses fail for all sorts of problems, but a main reason is the inability to manage money. According to a U.S. Bank study, 82% of businesses that failed cited cash flow problems as a factor.

Insufficient cash flow is tough to overcome, especially for small businesses. You often don’t have enough cash on hand to weather issues. It’s easy then for financial errors or unexpected challenges (like shipping costs, surcharges, supply chain disruptions) to result in the end of your business.

Small business owners need access to outside capital to grow their business with efficiency and intelligence. It can give you the security you need to grow your business and overcome any hurdles as they come.

Traditional Finance Institutions Fall Short for Small Businesses

The problem? Traditional finance institutions like banks can under serve online businesses. Their outdated underwriting processes aren’t tailored for entrepreneurs and eCommerce businesses.

Biz2credit’s lending index indicates that big banks approved just 13.2% of small business loans requests in January 2021. Meanwhile, small banks granted just 18.3%, a sharp decline from 50.4% in January 2020 (as pictured below)

Shopify also reported that 36% of their merchants facing COVID-19-related challenges stated that “My bank or financial institution doesn’t understand the needs of my business.”

Small businesses need anywhere from $10,000 to $80,000 in startup capital. Without it, you can’t finance sales or inventory and usually end up laying off employees.

Today, many businesses are now turning away from traditional institutions and funding options. Instead, they’re using alternative financing solutions that are tailored to online businesses to get access to the cash they need (and when they need it) to survive in the evolving and competitive retail landscape.

Top 5 Ways to Fund Your eCommerce Store

Here’s the top ways to find financing as a Shopify seller and/or eCommerce business owner:

1. Shopify Capital

In 2016, Shopify started offering their own financing program, Shopify Capital, that offers two types of financing: a merchant cash advance and a business loan.

How it works:

  • Eligibility is based on your sales history with Shopify (both eCommerce and POS data). If you meet their minimum requirements, you’ll see an email and offer in your Shopify Admin page — your offer is only valid for 30 days.
  • If you accept the offer, then you’ll fill out a quick application process (minimal paperwork) and no credit checks.
  • If approved, the funds will be deposited into your business bank account within 2 to 5 business days.

Funding amount: Between $200 — $1,000,000 USD or $200 to $500,000 CAD

Repayment Terms: There is no interest. Instead, you’ll repay a fixed amount/flat fee by one of these ways.

  • For a cash advance: You pay a fixed percentage of your sales remitted on a daily basis until the total amount owed is repaid. For example, Shopify might advance you $10,000 for $10,500 of your future revenue, with a remittance rate of 10%. You’d receive the $10,000 and then pay Shopify back 10% of your daily sales until the full $10,500 is remitted. There’s no deadline to pay it back.
  • For a loan: You pay a fixed percentage of your sales remitted on a daily basis over the course of 12 months. Within those 12 months are six 60-day repayment cycles with minimum payback amounts.
  • Actual remittance amounts: Because repayment is based on a fixed percentage of daily sales, the actual daily payment amount changes. So if you’ll pay less on a slow sales day and more on a big sales day.


  • Simple application process through Shopify
  • No credit checks
  • Flexible funding amounts
  • No compounding interest and easy repayment terms


  • You can’t apply for Shopify Capital. Only Shopify will let you know if/when you’re eligible.
  • Funding amount isn’t based on any sales or eCommerce performance outside of Shopify
  • You can’t repay your loan off early for any added benefits

For more info about Shopify Capital, check out their program’s FAQ. Also, note their current restrictions for capital (at the time of the writing of this blog post).

2. Credit Cards

A tried and true traditional financing method is using credit cards to pay for general expenses and some inventory purchases. And as you make purchases with a credit card, you can rack up reward points and cash back rewards to continue to use for your business.

You can check out business cards from American Express and Chase.

Over the long term though, credit cards alone probably won’t be enough to finance your business. You can quickly outgrow your credit limit, especially with how often you need to make big purchases like inventory. This can lead to maxed out cards, which can still put strain on your cash flow and your credit.


  • Easy to sign up
  • Low interest rates
  • Cash back rewards
  • Multiple options for providers and benefits


  • Can easily max out credit limits
  • Credit cards are a form of debt
  • Pay extra fees if you don’t pay your minimum balances on time
  • Even if your business closes, you’ll owe whatever is on your credit cards

3. VCs

Many brands also turn to venture capital to raise the funds they need. These private equity investors give you capital in exchange for an equity stake in your business. In other words, you’re giving up ownership of your business to work with a VC.

Over the years, VCs have targeted high-growth sellers, especially DTC brands.

Globally, DTC startups have raised $8 billion to $10 billion on known venture capital across more than 600 deals since the start of 2019.

While venture capital can be a great fit for some brands, it’s not a magical solution for everyone that leads to a big IPO day. Not only are you giving up a significant part of your business, you may also be giving up decision-making power of how to run your business.

So far, there’s been mixed results with VCs. Leading brands like Allbirds, Dollar Shave Club, and Warby Parker have been successful with VC money. But, there’s also been big disappointments like Outdoor Voices, Brandless, and Casper.

The Challenges of VC Funding for eCommerce

The downfall of some VC and eCommerce brand relationships is that VCs expect constant high-growth (even if it becomes unrealistic).

VC firms expect returns of 10 to 15 times their investment— which can cause VC-based companies to only focus on top-line growth, not profitability. This leads to most brands using VC money on paid marketing and acquiring new customers. But, this can quickly turn into a game of “growth at all costs”, even if your business is run into the ground in the process.

Before you take on VC money, just be sure to educate yourself on the process and pick your VC partner with due diligence.


  • Access to large sums of financing
  • Leverage the relationships and contacts of your VC firm
  • Gain media attention
  • Can lead to a successful IPO


  • Grueling and long process of pitching VC firms
  • Give up equity in your business, making it more expensive in the long run
  • Constant pressure and expectations of growth
  • Lose decision-making over your brand
  • Lots of competition for VC funding

VC and eCommerce has been a hot topic in the past year or so. Read more about why some DTC brands are turning their back on it. Instead, these brands are focusing on referral marketing and optimized end-to-end customer experiences to grow at their own pace.

4. Instant Advance

Recognizing the lack of options for eCommerce sellers, there are FinTech companies like Payability that offer cash advances (not a loan or debt) designed for Shopify, Amazon, and eCommerce businesses. Payability’s Instant Advance for Shopify could get you up to $250,000 as soon as tomorrow, and doesn’t require you to have a long business history like traditional bank loans.

How It Works:

  • Approval is based on your Shopify, Amazon, or other eCommerce account health and sales performance — no credit checks.
  • To qualify, you must have at least 9 months of selling history and make at least $2,000 on average in sales per month
  • Your funding amount is based on your entire eCommerce portfolio (i.e. Amazon, Walmart, Newegg, and more), including marketplaces you sell on outside of Shopify (unlike Shopify Capital)
  • Apply online (less than 10 minutes) and be approved in as fast as 24-hours

Funding Amount: Up to $250,000 (actual amount is typically 75% — 150% of one month’s worth of total sales revenue)

Repayment Terms: There’s no interest, instead you repay with a fixed amount/flat fee. Instant Advance is a purchase of your future receivables (or online sales). As you sell, you’ll remit a fixed percentage of your sales to Payability until the total amount owed is paid back. Similar to Shopify Capital, the daily payment amount changes depending on how much you sell.

Early Payment Benefits: Payability offers you a fee rebate for every week you pay your advance back early. So pay back in half the time and pay half the fee.

Note: You can use your Instant Advance from Payability alongside your Shopify Capital financing to get the total amount of cash you need to operate and grow your business.


  • Cash advances are not a loan or taking on debt - instead they are purchasing some of your future sales outright
  • Use the cash advance for whatever you need — inventory, marketing, expenses, etc
  • Simple online application. No paperwork
  • Receive large sums of financing in as fast as 24-hours
  • No credit checks
  • Designed for growing to high-volume eCommerce business
  • Multichannel Solutions: Funding is based on your sales history from Shopify and other online eCommerce channels you sell on such as Amazon, Walmart, Newegg, eBay (sellers must be on eBay managed payments), and more.
  • Instant Access (accelerated daily payments) also available to sellers paid on terms by marketplaces such as Amazon, Newegg, Walmart, and more. Payability Instant Access gets marketplace sellers paid for their sales the next day, every day and protects you against cash flow constraints and Amazon account level reserve.


  • Can include high fees
  • Short payment terms
  • Offline sales channels not included in funding amount

5. Bank loans and Lines of Credit

Of course, all businesses can head to a bank for a traditional loan (personal, SBA, etc) or a line of credit (LOC) — it’s just a matter of whether you’ll be approved or not. In all cases, they’ll look at your personal credit score, history with the bank, and income to determine your loan amount and APR. If approved, you’ll pay back the loan or LOC over monthly installments, typically from 3 to 10 years.

For established businesses, loans and LOC can be a great fit because you have the time in business and years of tax history to meet their qualifications.

Otherwise, traditional loans can have low approval rates for new and growing online businesses. You might not meet their outdated underwriting process (how they decide if you’re approved and for what amount) that favor large, established businesses.

And, you should pay attention if your loan is “secured”, meaning that you have to put up collateral like your house or car to be approved. In the case that you can’t pay back the loan for your business, you’ll owe them your personal assets.


  • Low interest rates
  • Small, monthly repayment terms over long periods
  • For LOC, you don’t have an obligation to use the money. You only make payments on the amount you actually borrow, not your full limit.


  • Slow approval process can take weeks and require extensive paperwork
  • Low approval rates for new and growing eCommerce business
  • Base funding and approval on personal credit score, not health of your business
  • “Secured” loans require you to mix your personal finances with your business

To learn more about your financing options, read this in-depth guide to top funding options as an online business.

How to Choose the Right Funding Option

Every business is different. What financing is best for your online business might not make sense for someone else. Choosing the best option comes down to a few key things:

  • What you can be approved for
  • How much cash you need
  • How quickly you need it
  • What your short term and long terms goals are for your business

And remember, you don’t have to pick just one. You can use many of these solutions alongside each other for maximum benefits.

About the Author

Jillian Hufford has over seven years of educating merchants on digital commerce and marketing growth strategies and best practices. She is a frequent author and thought contributor on DTC and B2B commerce, SaaS software, and B2B content marketing. She also contributes regularly to CMSWire. Connect with Jillian on LinkedIn: @JillianHufford


This is a guestpost shared on ReferralCandy. The author bio is at the bottom of the article!

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