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June 25, 2024
Mark Jorgenson
Partner Spotlight

Traditional vs. Alternative Ecommerce Funding Options: Which is Best For You?

Traditional vs. Alternative Ecommerce Funding Options: Which is Best For You?

Table of Contents

Navigating the world of ecommerce can be exhilarating, but it often requires significant capital investment to grow and thrive. 

Whether you're a budding entrepreneur launching your first online store or an established seller looking to expand, understanding your ecommerce funding options is crucial. With the ecommerce market projected to reach $6.4 trillion in 2024, competition is fierce, and having the financial resources to invest in inventory, marketing, and technology can set you apart from the rest.

For instance, Amazon sellers often turn to loans or lines of credit to manage cash flow and stock up during peak seasons. On the other hand, Shopify store owners might leverage revenue-based financing, which offers flexible repayment terms based on their sales.

According to a Goldman Sachs survey, over 75% of small business owners identified access to funding as a major growth challenge. Therefore, exploring various funding avenues can provide the capital needed to fuel growth and innovation.

This article delves into traditional and alternative ecommerce funding methods, assesses popular platforms, and provides practical advice on choosing and applying for the right financing solutions.

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Understanding Your Ecommerce Funding Options

As previously mentioned, exploring different funding options is crucial for growth and sustainability. Various funding methods—like venture capital, crowdfunding, small business loans, and bootstrapping—offer unique advantages and challenges.

For instance, venture capital can provide substantial funds and business expertise but often requires giving up equity. Crowdfunding can validate a product idea and build a customer base early on but demands significant marketing efforts. Small business loans offer control without diluting ownership but need regular repayments. Bootstrapping maintains full ownership but limits growth speed.

Selecting the right ecommerce funding option aligns resources with business goals, ensuring the right balance between control, risk, and growth potential.

RELATED: 5 Amazon Inventory Financing Options for Sellers

Traditional Funding

Calculating money

Traditional financing refers to conventional business methods to secure capital, primarily through financial institutions like banks and credit unions.

This type of financing typically involves applying for loans or lines of credit, which are repaid over a set period with interest. Traditional financing can be an attractive option for ecommerce businesses seeking stable and predictable funding.

A study by the Federal Reserve revealed that 43% of small businesses applied for a loan in the past year, with 55% of those applications being approved. Among these, traditional banks remain a primary funding source, accounting for 49% of loan applications.

For example, Amazon sellers often use term loans to invest in large inventory purchases ahead of peak seasons like Black Friday and Cyber Monday.

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How Traditional Ecommerce Loans Work

To secure traditional financing, an ecommerce business typically follows these steps:

  • Application: Apply to a bank or financial institution, detailing the business's financial health, credit history, and purpose for the loan.
  • Evaluation: The lender evaluates the application based on creditworthiness, business plan, revenue projections, and collateral.
  • Approval: If approved, the lender provides a loan amount, interest rate, and repayment terms.
  • Disbursement: Funds are disbursed to the business, which then uses the capital for its intended purposes (e.g., purchasing inventory, scaling operations, marketing campaigns).
  • Repayment: The business repays the loan over the agreed period with regular payments including principal and interest.

Traditional Financing Options

Term Loans

A lump sum provided by a bank, repaid over a fixed period with interest. These are ideal for significant one-time investments like buying equipment or expanding operations.

Lines of Credit

A flexible funding option where businesses can borrow up to a set limit and only pay interest on the amount used. This is useful for managing cash flow and handling unexpected expenses.

SBA Loans

Loans backed by the Small Business Administration (SBA), offer favorable terms and lower interest rates, though they have stringent eligibility criteria.

Business Credit Cards

Useful for smaller, ongoing expenses with the flexibility of revolving credit, though they often come with higher interest rates.

Pros of Traditional Financing

  • Lower Interest Rates: Typically lower than alternative financing options, making them more cost-effective in the long run.
  • Structured Repayment Plans: Clear terms and fixed repayment schedules provide predictability for financial planning.
  • Larger Loan Amounts: Banks can offer significant loan amounts, beneficial for substantial investments.
  • Establishes Credit History: Successfully managing a traditional loan can improve the business's credit score, facilitating future borrowing.

Cons of Traditional Financing

  • Stringent Qualification Criteria: Requires a good credit history, solid business plan, and sometimes collateral, which can be challenging for new businesses.
  • Lengthy Application Process: Extensive paperwork and longer approval times can delay access to needed funds.
  • Fixed Repayments: Little flexibility in repayment schedules, which can strain cash flow, especially for businesses with variable income.

Making an Informed Decision

When considering traditional ecommerce funding, weigh the benefits of lower interest rates and structured repayment plans against the potential challenges of stringent qualification criteria and lengthy application processes.

It’s advisable to assess your business’s financial health, credit history, and immediate funding needs. If qualified, traditional financing can provide the necessary capital to scale and thrive in your chosen ecommerce marketplace.

By understanding the nuances of traditional financing, you can make informed decisions that align with your business goals and financial capabilities, ensuring you choose the best funding option to support your growth and success.

Alternative Ecommerce Financing

Money growing

Alternative financing refers to funding methods that differ from traditional bank loans. These options have gained popularity among ecommerce sellers due to their accessibility, flexibility, and speed.

Unlike conventional loans, alternative ecommerce business funding often involves less stringent requirements, making it easier for businesses with limited credit history or collateral to secure the needed money.

Based on a 2015 survey, 71% of small businesses in the ecommerce sector have used some form of alternative financing, highlighting its growing importance in sustaining and scaling online businesses.

How Alternative Ecommerce Financing Loans Work

Alternative ecommerce financing typically involves an application process that can be completed online. Lenders evaluate the business on various factors rather than relying solely on credit scores. Sales history, cash flow, and overall financial health are considered.

Once approved, funds are usually disbursed quickly, sometimes within a few days. Repayment terms vary depending on the type of financing but often include flexible structures tied to the business’s revenue.

Pros of Alternative Financing

  • Accessibility: Easier approval for businesses with limited credit history or collateral.
  • Speed: Quick approval and funding processes, essential for time-sensitive opportunities.
  • Flexibility: Repayment terms can be tailored to the business’s income, reducing financial strain.
  • Diverse Options: A wide range of funding solutions to meet specific business needs.

Cons of Alternative Financing

  • Cost: Higher interest rates and fees compared to traditional loans.
  • Shorter Terms: Shorter repayment periods can lead to higher periodic payments.
  • Risk: Some forms of alternative financing, like merchant cash advances, can become expensive if sales do not meet expectations.
  • Complexity: Understanding the terms and conditions of various alternative financing products can be challenging.

Alternative Ecommerce Financing Options

Fintech Lenders

Fintech lending has emerged as a popular funding option for ecommerce businesses, leveraging technology to offer accessible, faster, and often more flexible financing solutions when compared with traditional banks.

According to a 2019 report by S&P Global, fintech lending to small and medium-sized enterprises (SMEs) grew by 72.4% annually over the past five years, reflecting the increasing reliance on these platforms by ecommerce businesses.

Here’s a comprehensive look at how fintech lending works, its advantages and disadvantages, and how sellers can make informed decisions about utilizing this option.

How Fintech Lending Works

Fintech lending platforms use technology and data analytics to streamline the lending process. Instead of relying solely on traditional credit scores and financial statements, these platforms often consider alternative data such as sales performance, customer reviews, and social media presence to assess the creditworthiness of a business.

Here’s a typical process for fintech lending:

  • Application: Ecommerce sellers apply online, providing basic business information and connecting their financial accounts to the platform.
  • Data Analysis: The platform analyzes a range of data points, including transaction history, sales volume, and other business metrics, to evaluate the risk and determine loan terms.
  • Approval: Based on the analysis, the platform can offer loan options, including terms such as the loan amount, interest rate, and repayment schedule.
  • Funding: Once approved, funds are usually disbursed quickly, often within a few days.
  • Repayment: Repayment terms vary but can be structured as fixed monthly payments or a percentage of daily sales, providing flexibility based on the business’s cash flow.

Pros of Fintech Lending

  • Speed and Convenience: Applications are typically completed online, and decisions are made quickly, often within hours or days. This is ideal for ecommerce sellers needing immediate access to capital.
  • Flexible Criteria: Fintech lenders consider a broader range of data, making it easier for businesses with less-than-perfect credit or limited credit history to qualify.
  • Tailored Products: Many fintech lenders offer products specifically designed for ecommerce businesses, such as merchant cash advances or revenue-based financing, which align repayment with sales cycles.
  • Transparency: These platforms often provide clear, upfront information about fees and repayment terms, helping businesses understand the total cost of the loan.

Cons of Fintech Lending

  • Higher Costs: The convenience and speed of fintech loans can come at a price. Interest rates and fees are often higher than traditional bank loans.
  • Shorter Terms: Fintech loans typically have shorter repayment periods, which might be challenging for businesses needing long-term financing solutions.
  • Variable Repayments: Cash flow can be unpredictable in loans with repayments tied to daily sales. During slow sales periods, repayments might still need to be made, potentially straining the business.
  • Less Regulation: Fintech lenders are not always subject to the same regulatory scrutiny as traditional banks, which can pose risks related to transparency and fair lending practices.

One prime example of a fintech lender is Kabbage, which provides lines of credit to small businesses based on their financial data. Another example is Shopify Capital, which offers cash advances and loans to merchants using the Shopify platform, with repayments tied to daily sales. More on that later.

In short, fintech lending offers a viable option for sellers seeking quick and flexible ecommerce funding. 

Merchant Cash Advances

A Merchant Cash Advance (MCA) provides businesses with a lump sum of capital in exchange for a percentage of future sales. Unlike traditional loans, MCAs are not repaid through fixed monthly installments. Instead, repayment is made through a portion of daily credit card or debit card sales until the advance, plus a fee is fully repaid.

How Does a Merchant Cash Advance Work?

  • Application and Approval: Ecommerce businesses apply for an MCA by providing details about their sales history. Lenders typically look at credit card and debit card sales to assess eligibility.
  • Advance and Agreement: Once approved, the business receives a lump sum. The terms include the total repayment amount (the advance plus a fee) and the percentage of daily sales that go towards repayment.
  • Repayment: Repayment is automatically deducted from the business’s daily credit card and debit card sales. This continues until the total agreed-upon amount is repaid.

Pros of Merchant Cash Advances

  • Quick Access to Capital: MCAs can be approved and funded quickly, often within a few days. This is ideal for ecommerce businesses needing immediate funds for inventory purchases, marketing campaigns, or other urgent needs.
  • Flexible Repayment: Repayments are tied to sales, meaning businesses pay more when sales are high and less when sales are low. This can help manage cash flow during slower periods.
  • No Collateral Required: MCAs are unsecured, meaning businesses don't need to provide assets as collateral, which reduces risk.

Cons of Merchant Cash Advances

  • High Cost: MCAs can be significantly more expensive than traditional loans. The effective interest rates can be high, sometimes reaching triple digits, making it a costly form of financing.
  • Daily Deductions: Daily repayments can strain cash flow, especially for businesses with fluctuating sales. This can make it difficult to manage daily operating expenses.
  • Short Repayment Period: The repayment period for MCAs is typically short, often ranging from three to twelve months. This can lead to high daily or weekly payments.

When considering an MCA, weigh the immediate benefits against the long-term costs. Here are some factors to consider:

  • Cost vs. Benefit: Calculate the total repayment amount and compare it to the expected return on investment from the funds. If the cost of the MCA outweighs the benefits, it might not be the best option.
  • Sales Stability: Businesses with stable and predictable sales are better positioned to manage daily repayments. Those with fluctuating sales might struggle with the repayment structure.
  • Alternative Funding Options: Explore other funding sources such as traditional bank loans, lines of credit, or fintech lending. These might offer lower costs and more manageable repayment terms.

Suppose you’re running an online store specializing in seasonal products. You anticipate a surge in sales during the holiday season but need $50,000 to stock up on inventory.

A traditional loan might take too long to process, so you opt for an MCA. You receive $50,000 with an agreement to repay $65,000 through 15% of daily sales. During the peak season, sales are high, allowing for quicker repayment without significantly impacting daily cash flow. However, if sales dip unexpectedly, the daily deductions might become burdensome, highlighting the importance of stable sales for managing MCA repayments effectively.

MCAs offer a fast and flexible way to access funds, but they come at a high cost and with daily repayment obligations that can impact cash flow. Carefully evaluate the pros and cons and consider your specific business needs and sales patterns to decide whether an MCA is the right funding option for you.



Crowdfunding is a well-known ecommerce funding option for sellers, offering a unique way to raise capital by soliciting small contributions from many people.

Platforms like Kickstarter, Indiegogo, and GoFundMe have made it easier for entrepreneurs to pitch their ideas directly to the public and secure the necessary ecommerce funding to launch or expand their businesses. 

One of the most successful crowdfunding campaigns, Pebble Time, a smartwatch, raised over $20 million on Kickstarter in 2015, showcasing the potential of crowdfunding for tech products.

According to Kickstarter themselves, as of January 2024, $7.8 billion has been pledged to projects on their platform, with a success rate of approximately 41.15%.

How Crowdfunding Works

  • Create a Campaign: Entrepreneurs create a campaign on a crowdfunding platform, outlining their business idea, product, or project. This includes detailed descriptions, images, and often a video to attract potential backers.
  • Set a Funding Goal: The campaign sets a specific goal and a deadline. This is the amount of money needed to bring the project to life.
  • Offer Rewards: To incentivize backers, campaigns often offer rewards based on the amount of money contributed. These range from early access to the product, to exclusive merchandise, or other perks.
  • Promote the Campaign: Success largely depends on effective promotion. Campaigns are typically marketed through social media, email newsletters, and other channels to reach a broad audience.
  • Collect Funds: The funds are collected and given to the entrepreneur if the campaign reaches its goal within the specified time frame. If it does not meet the goal, platforms like Kickstarter typically operate on an all-or-nothing model, where no money is collected.

Pros of Crowdfunding

  • Access to Capital: Crowdfunding provides access to capital that might not be available through traditional funding sources, especially for new or unconventional products.
  • Market Validation: A successful campaign can validate the demand for a product before it goes into full-scale production. This reduces the risk of launching a product that doesn’t resonate with customers.
  • Marketing and Exposure: Crowdfunding campaigns can generate significant publicity and buzz around a product, attracting media attention and new customers.
  • Customer Engagement: Backers of crowdfunding campaigns often become loyal customers and brand advocates. Engaging directly with backers can build a strong community around the brand.

Cons of Crowdfunding

  • High Competition: Standing out on platforms like Kickstarter and Indiegogo can be challenging due to the popularity of crowdfunding. Many campaigns don’t meet their funding goals.
  • Significant Effort: Creating and managing a successful crowdfunding campaign requires time and effort. This includes crafting compelling content, continuous promotion, and regular updates to backers.
  • All-or-nothing Risk: Many platforms operate on an all-or-nothing model. If the campaign doesn’t reach its funding goal, no funds are collected, and the effort may result in no financial gain. 
  • Fulfillment Challenges: Successfully funded campaigns must deliver on their promises. Managing production, shipping, and customer satisfaction can be overwhelming, especially for entrepreneurs with limited experience.

Crowdfunding can be a powerful tool for ecommerce businesses looking to bring new products to market or expand their offerings.

Venture Capital and Angel Investors

Venture capital involves obtaining funds from investment firms that manage pooled funds from multiple investors. These firms invest in startups and small businesses with high growth potential in exchange for equity, or partial ownership of the company.

Venture capitalists invest in businesses that can generate substantial returns, often seeking to exit their investment through an initial public offering (IPO) or acquisition.


  • Large Funding Amounts: VCs can provide significant capital, often in the millions, which is ideal for scaling operations, expanding into new markets, or developing innovative products.
  • Expertise and Mentorship: Beyond funding, VCs offer strategic guidance, industry connections, and operational support, leveraging their experience to help businesses grow.
  • Credibility: Securing VC funding can enhance a company’s credibility and attract additional investors or partnerships.


  • Equity Dilution: Receiving VC funding requires giving up a portion of ownership, which can dilute the founder’s control over the company.
  • High Expectations: High returns on their investments are expected, which can create pressure to achieve rapid growth and profitability.
  • Loss of Autonomy: VCs often sit on the board and have a say in significant business decisions, which may limit the founder's autonomy.

Shopify, a leading ecommerce platform, raised significant ecommerce startup funding in its early stages, helping it grow from a small startup to a publicly traded company with a market capitalization of over $150 billion.

Angel Investors

Angel investors are affluent individuals who invest their funds into startups and small businesses in exchange for equity. Unlike venture capitalists, angel investors typically invest smaller amounts (vs. VC) and are often involved in the early stages of a business.


  • Flexible Terms: Angel investors might offer more flexible investment terms when compared with VCs, as their investment criteria can be more personal and less rigid.
  • Mentorship and Advice: Like VCs, angel investors often provide valuable guidance and industry insights, leveraging their own entrepreneurial experience.
  • Speed and Accessibility: Securing angel investment can be quicker and less bureaucratic compared to VC funding, with fewer layers of approval.


  • Limited Funding: Angel investments are generally smaller than VC funds, which may not suffice for large-scale expansion plans.
  • Equity Sharing: Founders still need to give up equity, which means sharing ownership and potentially losing some control over the business.
  • Investment Risk: Angel investors typically invest in riskier ventures, which can result in higher expectations for growth and potential for rapid scale.

Take Jeff Bezos, the founder of Amazon, as an example. The former CEO initially raised capital from angel investors who provided the necessary seed funding to help launch and grow what would become one of the largest ecommerce companies in the world.

When deciding between venture capital and angel investors, consider your funding needs, growth stage, and long-term business goals.

  • For Early-Stage Startups: Angel investors may be more suitable due to their willingness to invest in high-risk ventures and provide mentorship.
  • For Rapid Growth and Large Capital Needs: Venture capital is ideal for businesses looking to scale quickly and needing substantial funds.

According to the National Venture Capital Association, US venture capital investments reached over $130 billion in 2020, highlighting the significant role of VC in fueling business growth. Similarly, the Angel Capital Association reports that angel investors contribute billions annually to support startups.

Assessing Top Ecommerce Funding Platforms

Funding Platform

Several platforms cater specifically to ecommerce funding needs. Below, we evaluate some of the most popular ones:

1. Boundless

Boundless offers a streamlined process for obtaining ecommerce funding by connecting businesses with a vast network of lenders. Their platform simplifies the application process and matches businesses with suitable lenders, ensuring quick and tailored funding solutions.


  • Simplified application process
  • Access to multiple lenders
  • Fast funding offers


  • Might not cover all niche funding needs

2. Shopify Capital

Shopify Capital offers funding to merchants using its platform. The funds can be used for various business needs, from inventory purchases to marketing.


  • Easy application process
  • No credit checks


  • Available only to Shopify users
  • Repayment based on sales

3. PayPal Working Capital

PayPal offers ecommerce business loans to merchants who process payments through its platform. Loan amounts are based on the merchant's PayPal sales history.


  • Quick approval process
  • Flexible repayment tied to sales


  • Available only to PayPal users
  • Loan amounts limited by sales volume

Practical Advice on Choosing and Applying for Ecommerce Funding


Assess Your Needs

Before applying for ecommerce funding, clearly define your business needs. Determine the amount required, the purpose of the funds, and the desired repayment terms. This assessment will help you choose the most suitable funding option.

Research Your Options

Thoroughly research various ecommerce financing options. Compare interest rates, repayment terms, and eligibility criteria. Online reviews and testimonials can provide insights into the reliability and customer service of different lenders.

Prepare Your Documentation

Having the necessary documentation ready can streamline the application process. Typical requirements include business plans, financial statements, tax returns, and identification documents.

Evaluate the Cost of Capital

Understand the total cost of the loan, including interest rates, fees, and any other charges. Compare these costs across different lenders to find the most affordable option.

Consider the Impact on Cash Flow

Ensure that the repayment terms of the loan match your business’s cash flow. Choose funding options with flexible repayment terms that won’t strain your finances.

RELATED: Maximizing Profit with Amazon Financing Solutions
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Empowering Your Ecommerce Journey with the Right Funding

Exploring different ecommerce loans is important for the growth and sustainability of your business. Various funding methods offer unique advantages and challenges.

The key takeaway is to choose based on your business’s stage, funding needs, and growth ambitions.

Traditional loans provide structured repayment and lower interest rates but have stringent qualification criteria. In contrast, online financing like fintech loans and merchant cash advances offer speed and flexibility but at higher costs.

Alternatively, Venture Capital and Angel Investors may be ideal for businesses with high growth potential. Venture capital offers substantial funds and expertise but requires equity dilution. Angel investors provide early-stage funding and mentorship with more flexible terms.

Platforms like Shopify Capital, PayPal Working Capital, and Boundless cater specifically to ecommerce needs, providing tailored funding solutions.

When selecting a funding platform, evaluate the total cost of capital, repayment terms, and the impact on cash flow. Thorough research and preparation can ensure you choose the best financing option for your online store.

By leveraging the right ecommerce funding sources, you can secure the financial stability needed to scale your online operations, innovate, and stay competitive in the ever-evolving market. With strategic planning and informed choices, you can turn funding challenges into opportunities for growth and success.

RELATED: Unconventional Financing For Amazon Sellers: Finding The Money

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