e-commerce business loan

Traditional vs. Alternative: Which E-Commerce Business Loan is Best for Me?

E-commerce is the future of retail. E-commerce sales in 2020 accounted for 14% of all sales in the country, and it’s estimated that there will be 2.14 billion global digital buyers in 2021. Every e-commerce business faces unique challenges, such as stiff competition, online compliance, delivery, lead generation and conversion. To overcome these hurdles, you need reliable funding. This is where an e-commerce business loan comes in handy. E-commerce business loans are available to those with good or bad credit and for startups and specific uses such as equipment purchase.


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This post takes you through the top business loans and how they work to unlock the potential of your e-commerce business:

Traditional lender vs. alternative lender for business financing

The lending market offers vast opportunities for small businesses to receive capital for their business needs. But there are a few differences between traditional lenders like banks and other financial institutions and alternative lenders like online private lenders that vary in the ways they offer and secure funding.

Below, we’ve put together a cohesive list of pros and cons that can help you understand the options that are available to you and your small business:

Pros of using a traditional lender

  1. Potentially larger loan amounts
  2. Longer repayment periods
  3. Crucial business evaluation
  4. Widest variety of business loans (LOC, term loans, business credit cards, equipment financing, etc.)
  5. Fixed-rate funding options

Cons of using a traditional lender

  1. Lengthy loan application
  2. Stringent loan requirements
  3. Collateral is a key requirement that disqualifies many small businesses
  4. Potential hidden fees/charges
  5. Banks are averse to risk (meaning your business must be doing well)

Pros of using an alternative lender

  1. Quick and easy application
  2. Sometimes no collateral requirements
  3. Availability of e-commerce business loan even with bad credit
  4. Flexibility for the funding purpose
  5. Online applications
  6. Varying funding options
  7. Flexible payment schedules
  8. Flat origination or processing fee
  9. Tailored funding opportunities for your business loan products

Cons of using an alternative lender

  1. Shorter-term loan
  2. Potentially higher rates
  3. Potentially smaller loan amounts
  4. Frequent payments required by some lenders

So, taking the above into consideration, what funding option should you choose?

It’s not a simple answer, but if you’re a small business with less collateral, require funding quickly and conveniently and are unsure whether your credit qualifies you for a traditional loan or credit option, alternative lending may be your answer. You’ll be able to access capital faster than a traditional method, and your business funds can arrive in just a few days’ time. Plus, you’ll have peace of mind in knowing that most origination and processing fees are a flat rate — meaning you won’t need to worry about any surplus charges added on to your total.

However, if your business is able to uphold the criteria that’s required for a traditional lender, like having enough capital to secure collateral that banks will want to use against your funding, having excellent credit and you’re not concerned with securing capital within a short time frame, you can consider a traditional lender. Here you can have a fixed interest rate that can also be considerably lower than an alternative lender, but you’ll have to be wary of hidden fees and passing a risk assessment that most traditional lenders will require.



Alternative options for an e-commerce business loan

Here are some of the top financing options to consider:

Small business loan

A small business loan can be either a short-term or long-term loan. In this type of loan, a business owner will apply for a specific amount of working capital. Upon approval, the working capital will be provided with a specific loan term and fee. Keep in mind: the repayment is fixed, meaning you will pay the same amount of principal and capital per day, week or month until the loan is fully repaid. However, you are responsible for paying the entire loan amount, unlike a line of credit, where you pay only the working capital you use.

Line of credit

A line of credit is where working capital is provided to the business upon approval of application. The business can then draw on the line of credit when needed. A business can either draw the entire amount of the line of credit or only a small portion. In this case, a business is only responsibly for repaying the amount of working capital they actually drew from the account, plus a fee.

Asset-based loan

If your e-commerce business has any property or other forms of assets, then you can qualify for asset-based financing. A lender will use the loan-to-value ratio to determine how much that property is worth and how much working capital for which business can qualify. Keep in mind: if the loan cannot be repaid on time, then the lender may confiscate the property used as collateral.

SBA loan

SBA loans are partially covered by the government. This helps businesses ensure great rates and loan terms. There are different programs such as the SBA 504 loan program or other microloans that are great options for e-commerce businesses looking to secure long-term financing at a great rate unlike other traditional lenders.


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Gathering the required documentation

A successful e-commerce business loan application process requires the right documentation. These documents help the lender assess your creditworthiness, the financial health of your business, revenue flows and legality of your enterprise. Lenders carry out due diligence to mitigate risks and protect their interests.

For a successful loan application, you need the following documents:

  1. Business plan
  2. Financial statements, including annual revenue and profits and profit-and-loss statements
  3. Tax returns
  4. Business banking account
  5. Three months of bank statements
  6. Legal documents including business license/registration/lease
  7. Collateral details (if required)

Key takeaways on e-commerce business loans

If you have an e-commerce business, this is the time to leverage the immense opportunities in the market. With these tips on how to get an e-commerce business loan, you’re now set to unlock the potential in your business.

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