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Financing Options for Online Sellers

Non-traditional funding sources can help jump start your business.

Have you thought about expanding your online business, but wondered how you could manage to pay for it? Or has the uncertain economy affected your operation to the point that you’ve considered scaling back or shutting it down, all together?

You could max out your credit cards, borrow money from friends and family, or apply for a bank loan. But if none of these options seem like a workable solution—or if you’ve already exhausted every avenue—there are other, nontraditional sources of financing available to you that you may not be aware of.

Leveling the playing field

Online sellers may have lower overhead expenses than brick-and-mortar merchants, but they still have expenses. And like any business, it takes access to capital to help fuel growth. But, unlike their more traditional counterparts, online business owners are typically not well served by traditional lenders. Enter Kabbage Inc., a privately funded startup that makes business loans exclusively to online sellers.

Because there’s no big bank overhead expenses, interest rates are typically lower than bank loans

The Atlanta-based company—which derives its name from a slang term for cash—targets sellers who generate annual revenue between $50,000 and $2 million. Sellers can apply through the Kabbage site to receive credit lines of $7,500 to $15,000—the amount is determined by a host of factors such as sales volume, transaction volume, seller rating, time in business and others. Qualified applicants can get funding deposited to their PayPal accounts within minutes of applying, according to the company.

Kabbage doesn’t publicize its fees, but says it charges a flat rate per $100 advanced for the first 30 days, and an additional flat rate for each month thereafter. There are no application, startup or monthly/annual fees, according to the company.

Initially, Kabbage is providing advances for eBay sellers, but it plans to offer funding for merchants on Amazon and Etsy in the near future.

Peer-to-peer lending marketplaces

Some people need money; other people have money to spare. That’s the essence of peer-to-peer lending, which draws on a network of individual investors to provide personal loans to individual borrowers. Because there’s no big bank overhead expenses, interest rates are typically lower than bank loans.

Prosper Marketplace Inc., a San Francisco-based firm, offers a peer-to-peer lending service geared toward business owners. Rather than traditional small business loans, Prosper provides personal loans for business owners to use for their small business. The difference is that personal loans are based on an individual’s credit. So if your business doesn’t have a solid credit history, and you don’t mind putting your personal assets on the line, this type of loan might work for you.

The Prosper loan process may have a familiar feel to eBay sellers. Borrowers create loan “listings” online, which state how much they want to borrow and the maximum interest rate they want to pay (the minimum is 7.5 percent APR). Lenders—which are individual investors, not banks—bid on the listings. The interest rate drops the more bids a listing receives.

The entire process takes a few days, after which the loan amount is deposited into the borrower’s bank account. Repayment is by automatic withdrawal, based on a fixed monthly payment.

Zopa Ltd., in London, is a peer-to-peer lending marketplace that has been around since 2005 offering loans to individuals, not just business owners. Its model works like this: Borrowers apply for Zopa loans; lenders make lending offers for a specific term and rate. A borrower can accept an offer they like, or wait for a better one.It’s always a good idea to verify the company’s reputation with the Better Business Bureau

Loan payments are made monthly by direct debit. Zopa charges borrowers a £124.50 transaction fee and lenders a 1-percent annual fee.

Cash advances provide an alternative

If a loan is out of the question because of a poor credit history, consider a merchant cash advance. This option allows sellers who accept credit cards to receive funding based on future credit receivables. Repayment is based on a fixed percentage of daily credit card sales.

Providers like Business Loan Option, iBank, Merchant Advisors and others offer cash advances ranging from $1,000 to $3 million. A Web search for “merchant cash advance” brings up plenty of other sources worth checking out as well.

Tip: It’s always a good idea to verify the company’s reputation with the Better Business Bureau, or other vetting organizations before providing personal or financial information—and never agree to pay an upfront processing fee.

Qualifications to receive merchant cash advances vary, depending on the lender, with most requiring borrowers to have been in business for a minimum of anywhere from three months to a year.

Funding can be used for practically any business expense, be it acquiring new inventory or equipment, expanding the business space or operations, or even covering payroll for the month.

So if lack of money is holding you back from expanding your online business—or even keeping it afloat until the economy improves—just know that there are people and organizations out there that may be able to help.

About the author

Crista Souza
Crista Souza is founding editor of A journalism graduate of San Jose State University, she spent 13 years as a business and technology reporter in Silicon Valley. Crista has been writing about B2C and C2C ecommerce since 2008. Opinions expressed here may not be shared by The Online Seller and/or its principals.

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