There are a number of different e-commerce business models, all of which can benefit from specific loan types, and although their models are different they still function through taking online sales and providing products to customers.

To expand further on this topic, below we will explain the major types of e-commerce businesses that we are approached by here at Nucleus, so if you are an entrepreneur who is considering starting your own e-commerce enterprise, you can get a grasp of which one might be most suitable for you.

Business-to-Consumer (B2C)

B2C is easily the most common kind of E-commerce business model, where online retail stores, such as Amazon, or digital service providers like Netflix will sell products and services directly to a customer base. A business like Amazon is also large enough to also work as a third-party for other e-commerce business types, so if you are just starting out, approaching larger sellers like this could be a good opportunity.

Business-to-Business (B2B)

B2B most typically involves the wholesale of goods from one business to another, for example supermarkets that bulk buy wholesale items at a discount, and then sell them on to their own customers at a markup. There are also more specialised businesses that involve things like manufacturers producing and selling directly to retailers, or companies who sell software to companies who need those goods to function.

Consumer-to-Consumer (C2C)

Certain websites allow C2C transactions, whereby individuals can sell their services or products to others. Places like eBay (although eBay supports most e-commerce models) and Facebook Marketplace offer this service to its users. It is worth bearing in mind that if you are a registered e-commerce business, you can expect to pay fees for making sales through these third-party sites.

Consumer-to-Business (C2B)

C2B has been growing in recent years thanks to expanding platforms like Upwork, through which freelancers, whether they be coders, writers, strategists or anything else that might be relevant to business growth, can sell their services or products. It is a great opportunity for individuals who have niche skills to offer, or possess a wealth of knowledge on a subject and want to sell it as a package.

Direct-to-Consumer (D2C)

D2C involves the business going without the use of third parties, with the aim of selling their products and services directly to a customer base, normally through their own website, however in the current year it’s not unusual for entrepreneurs to advertise and sell through their personal social media, building a platform through posts and shares. If it is your intention to sell directly to consumers, you can expect there to be a lot of initial work to start gaining recognition to your products or services, though if you already have an established follower base, this could be the ideal e-commerce mode.

E-commerce Business Operational Models

As well as the different types of e-commerce business models, it is also worth considering the different ways your products or services might end up being shipped to consumers, of which, similar to business models, there are many. Below are a some of the main examples from e-commerce business models that approach as for loans at Nucleus:

• Subscriptions: Businesses like the previously mentioned Netflix will offer their customers rolling subscriptions so customers can continue to access their services, though this isn’t restricted to online services. It could be anything from food services like Eatfresh, to beauty products and music streaming services.
• Dropshipping: Dropping shipping is ideal for entrepreneurs who haven’t got space to hold a physical inventory, however are selling physical products, and it works by the seller making a sale, the item then being purchased, and a third party shipping the product to the consumer. It is ideal, however it means opportunities like bulk purchases cannot be secured for maximum profit to the seller.
• White Labelling: This is where a business will package a product to make it appear as their own and sell it on. If it is physical products, then items are generally purchased, repackaged, and sold, however for services, online or otherwise, they will be sold by one individual or business on behalf of another individual or business.
• Digital Products: If you have a service to sell you might find selling them online is the easiest way to build up a customer base, and that could include anything from online courses and e-books, to digital artwork or coding services.
• Marketplaces: If it is your intention to provide the service of making sales to other businesses you can try and establish your own marketplace, however you may find competition is steep with large enterprises like Amazon already available. Finding a niche where you can draw other sellers to who otherwise can’t find a place to sell their products or services will be key.

There are many different e-commerce business models, as well as operational models, and depending on the size of the operation you are intending to develop, each of them can benefit from having the financial support of a loan. Whether it is the ongoing support of a revenue based facility, or a more standard term loan to help promote or produce a new product, a loan can be worth considering to help you achieve growth.

Because e-commerce businesses are unique models, they can benefit from different loan types in ways that enterprises in other industries and sectors can’t. In particular, facility types like revenue based loans for ongoing funds, or term loans for product launches, can benefit e-commerce enterprises greatly, and may be worth considering for business owners looking to expand.

If you are an entrepreneur who is aiming to achieve growth and expansion in your e-commerce venture, below we’ll expand on the topic, and explain the loan types we offer at Nucleus, then look at some of the primary ways in which e-commerce businesses can achieve success through using them.

Nucleus Loans for E-commerce Businesses

First, we should iterate that if you are considering getting a loan, first speak to your financial advisor or accountant, and before you approach any lender, do your due diligence on their terms and services, as there is a good chance that one particular lender or lender type will have the ideal financial solution you’re looking for, rather than just approaching a traditional bank for example because you assume they are the defacto go-to for a loan. With that said, below are the loans we currently offer at Nucleus:

Term Loans:

Through a term loan you can access a lump sum of cash and use it for almost any business need, making it ideal for established businesses who are making a push for expansion or need to cover unexpected costs and don’t want to disrupt their cash flow. Through our term loans you can secure anywhere from £10k to £500k, with terms running between 3 months to 6 years.

Revenue Based Loans:

Revenue based loans are particularly useful for e-commerce businesses, as they mean you’ll have access to cash, but repayments will be based on your future revenue, as opposed to the models of term loans where a fixed sum needs to be repaid each month. Many e-commerce business owners come to us for our revenue based finance due to them experiencing varying cash flow between the production and sale of new products or marketing of services. Through our revenue facilities we offer 3k to 300k, and terms between 3 and 12 months.

E-commerce uses for Business Loans

There are many ways that you can achieve growth and expansion for your e-commerce business through the correct utilisation of a loan, which is why it’s so important to have a business plan in mind when you are considering taking on debt. With that in mind, and primarily focusing on the loan types we offer here at Nucleus, let’s look at some ways that you might be able to achieve this, and how the different loan types can help.

Subscriptions:

• Efficiency Improvements: Revenue based loans can be used for e-commerce businesses that want to invest in subscription services with the intent of improving the overall efficiency of their online platform, and a subscription to either software or digital tools can work to streamline or automate your operations, improving the overall customer experience.
• Managing Inventory: Other investments back into the business can include inventory management systems to help track your stock levels. The added benefit of this is that it will reduce any chances of you overstocking your inventory and more importantly, running out of your most popular items or services.
• CRM systems: Customer relationship management tools can help you with your customer base, as they can track customer buying patterns, and also send out automated follow up emails after purchases to help customers feel appreciated. It also tells them that you are interested in how they received your products or services.
• Data analysis: Further into the CRM systems, data analytics gives you insights into your customers’ behaviours and sales trends, which can help you understand which of your products are more popular and for what reasons.

Products and Services:

• Inventory: With an e-commerce business loan you can use the funds to expand your product range without worrying about interrupting your current operations, nor putting unnecessary financial strain on your business because of the investment. If your sales are more seasonal, you can also use finance to stock up on your highest demand products, ensuring you don’t miss out on any sales during that period.
• Market expansion: Linked to inventory, you may also be considering creating new products or developing new services to expand into new markets, and if done successfully, you can access an entirely new audience of customers.
• Product sourcing: Original product concepts are hard to come by in the current year, so spending time and resources on researching new products that could break into your niche market could be an extremely positive payoff.
• Customer base: If you are successful in expanding your inventory and reaching new markets and customers, working on welcoming them and familiarising them with your brand will help to keep them as repeat customers, and it ties back in to CRM systems, where you can reach out to your customers after they’ve made purchases to ensure they are happy.

E-commerce Marketing:

• Growth strategies: Planning, investing in, then executing an effective marketing campaign is one of the most effective ways for businesses of any kind to reach larger audiences and shift more units. You may want to pay for the service of a strategist, but even if you choose to do it yourself you will likely need funds for pay-per-click (PPC) adverts to help draw more traffic to your e-commerce site.
• SEO: Search engine optimisation is done to improve where your website ranks, typically on Google, and if you invest enough in it, it will be your name that customers see at the top of Google for the product you are selling. SEO can take time to perfect and it is a long term investment, with many agencies offering their services to help businesses reach the top of search for their niche.
• Campaign analytics: Investing in tools that give you real time data on your marketing campaign efforts can be invaluable, as they help you to see which of your strategies are working, and which need adjusting. For example if a PPC advert is failing to draw any conversions, you can adjust it to be similar to something that you know is working, and then re-implement it.
• Promotions: Advertising and offering promo-codes and similar methods to boost your growth is a great way to draw customers who otherwise may not have considered buying your product towards your site. Free giveaways or discounts, as well as events can all bring in large crowds and potential spenders.

By pushing forward and focusing on these areas for expansion and growth, and utilising a loan if necessary to achieve it, e-commerce businesses can create new customer bases and improve their overall service by smoothing out both how their website works, and how they analyse the traffic coming through it. Using either a term loan or revenue based loan, depending on your needs, could be the ideal solution you need to achieve this growth.

E-commerce businesses will need to produce the same documentation as other business types when approaching lenders for a loan, and this will typically involve financial documents, proof of your credit score and history, trading history, and in many cases a business plan to outline what your intentions for the loan are.

What you will find that differs is the criteria of different lenders, as well as the loan types, and because of that, we can only discuss with certainty what the qualification requirements are for our own loans here at Nucleus. If you are considering a loan for your e-commerce business, below we will discuss the primary points of qualification you can expect across a broad range of lenders, as well as discuss more specifically what our own criteria is.

Trading History:

Having a sufficient trading history will be important to lenders as they can get a full grasp of your successes and struggles, with struggles not always being a negative as they can demonstrate business resilience and perseverance as a director. Both of our loan products require businesses to have been in operation for at least 4 months for our revenue based facility, and 12 months for term loans, and this lets us assess your stability and performance during those periods. Particularly for our revenue loans, demonstrating that you have a record of generating the revenue needed to repay the facility will be important.

Revenue and Transactions:

Expanding a little further on our revenue based loans, to demonstrate your revenue is consistent we also require that your business has been taking a minimum of 5 transactions per month across the 4 month (as a minimum) trading period, and that revenue should also be generated from e-commerce payments and / or card takings. If your business has a consistent cash flow you can be confident that a loan application would be successful, and your cash flow will also help us determine what a sensible loan amount is for your business. This is important for us as responsible lenders, as we want to see every business we work with thrive, so ensuring you can meet your repayment obligations is a top priority.

Loan Amounts and Term Lengths:

As mentioned, your trading history will determine how much we are happy to loan out to your business, and at Nucleus, those numbers range from £3k to £300k (75k max if you are not a homeowner) for revenue based loans, and £10k to £500k for term loans. Terms for each loan type range from 3 to 12 months for revenue based loans and between 3 months to 6 years for term loans. Different lenders will have their own terms and loan amounts, so we advise that you do your due diligence if you are looking for a loan to find what is most suitable for you, and as usual, we suggest you speak to your financial adviser or accountant before committing yourself to any kind of facility.

Credit History and Documentation:

Regardless of who you approach for a loan, the prospective lender will expect to see your credit history, and also a number of financial documents. For traditional banks, a less than stellar credit history typically means you won’t be considered for a loan, however at Nucleus we consider a broader range of factors than just the numbers on the page. We will consider your business as a whole, and even your personal credit history if your business is not satisfactory, as we want to help as many business owners as possible achieve their aspirations. What you can expect if your credit score is considered higher risk are higher interest rates, and this is common across lenders.

With regards to financial papers, we use open banking, so with your permission, when you apply for a loan, we’ll have a complete view of your financial history without the need of you providing copies of your documents, however, if your lender does require it, you should expect to provide documents with records of your profit and loss statements, balance sheets and cash flow statements, as these will all give a clear picture of your current financial status and the health of your business.

Directors and Business Location:

We can only speak for ourselves here as different lenders will certainly have different criteria with regards to location requirements, but for us, we require that at least one of your directors owns a home in the UK. Along with this, we require that your business is registered and operational in either England, Wales, or Scotland if you intend to secure one of our loans.

Open Banking Access:

As mentioned above, we use open banking in our loan application process, and this lets us perform a much more accurate and efficient assessment of your business’s financial health. It also means we can process applications within minutes, analysing your real time data and producing a decision quickly and transparently. Once our application process is complete, we can even have the requested funds into your business account within the same day, making our loans a flexible and useful option for business owners who are in immediate need of cash.

You will likely find that criteria for our loans is not so dissimilar to other lenders, as the fundamentals, being credit history and proof of financial health are generally what lenders will consider most important. Lenders are businesses too, and we want to work with borrowers we can trust, and watch them thrive and expand with the funding we grant. Once you have done your due diligence and spoken to your financial advisors, if you are seeking a short-term or revenue based loan, we offer flexible solutions here at Nucleus and will be more than happy to discuss your options with you.

The pros of E-commerce business loans include being able to obtain the capital needed to grow, being able to manage your cash flow properly, and gaining the ability to invest in new business opportunities. The cons are more nuanced, but include things like the risk of overborrowing and high interest rates, however with a solid credit history and a good business plan, the cons are easily avoidable.

Below we’ll expand on the pros and cons of e-commerce business loans, so if you are a business owner who is considering financing, keep reading, and we’ll try to illustrate some of the most important outcomes you can expect through the access of finance.

The Pros of E-commerce Business Loans

Quick access to funds:

The majority of e-commerce focused lenders are alternative lenders like us at Nucleus Commercial Finance, and through our lending process, your application will be assessed in minutes, and in many cases we can transfer the funds into your account on the same day that you applied. This can be ideal for a number of reasons, but most often business owners come to us because they want to respond quickly to a market opportunity or an unexpected expense, and going to a traditional lender isn’t an option. It also means when a fresh trend arises in your market, you can move quickly to keep up with it and address any additional strain on operational needs.

Capital for Growth and Expansion:

Another large benefit of e-commerce business loans is they can grant your enterprise the capital that it needs for growth and expansion, so if you’re looking to launch a new product line or enter a new market and need to both purchase raw materials and increase the activities of your operations, having those additional funds will make it possible. An important area that e-commerce businesses must also pursue is marketing campaigns and ensuring their online presence is active, so producing these campaigns and ensuring your website is up to date can also be secured through additional finance.

Cash Flow Management:

Revenue based loans are particularly useful at helping e-commerce businesses, which often experience fluctuations in their revenue, maintain a regular flow of cash to ensure operations or things like payroll aren’t disrupted. This is because revenue based loans allow repayments to adjust based on your income, so they will reduce the financial strain on slower months.

Improving Business Credit:

One of the most important things a business needs to secure a loan with great terms is to have a low risk credit score, and by taking out and making timely repayments on a business loan you can achieve just this. Strong credit will demonstrate to any lender that you are trustworthy, and it will also increase your chances of securing another loan, should you need it, in the future, as you can demonstrate that you have paid off a prior one.

The Cons of E-commerce Business Loans

Potentially Higher Interest Rates:

Compared to traditional bank loans, you will find that alternative lenders have higher interest rates, and this is particularly true of short-term loans and revenue based funding due to the risk the lender takes on. Having a low risk business credit score can help stem these interest rates, though if your business is already operating on thin margins, it will be essential that you speak to your accountant or business advisor who can help you calculate loan costs and fees, helping ensure that the loan is a financially viable option for your enterprise before committing.

Overborrowing:

The accessibility of loans from alternative lenders, while positive if the business owner has done their due diligence and has a solid exit strategy, can sometimes lead to cases of businesses overborrowing. This may occur if a business has misused a previous loan and is struggling to keep up with payments, or feel comfortable with their current loan repayments and take on more debt to secure another opportunity, putting further strain on finances. Overborrowing is avoidable through proper planning and research, however, and responsible lenders will not knowingly push a business into debt that it cannot repay, as both the lender and the business will lose out.

Shorter Repayment Terms:

Not necessarily a con for some e-commerce borrowers, however with shorter terms they can put additional pressure onto a businesses cash flow, as the payments are more likely to be steeper, and if you do not meet your projected sales expectations you can find the rapid repayment schedule of your facility creating even more cash flow issues. This is another case where a thorough business plan will help avoid any repayment issues, and in cases where unexpected financial issues occur due to cases like a recession, it is likely that your lender will be sympathetic to this and work with you to resolve it.

Qualification Requirements:

If your e-commerce business is newly established or has inconsistent sales, you will likely run into problems when you are trying to secure a loan, and this will be common across all lender types. While here at Nucleus we require you to have only been trading for 4 months, we still require proof of consistent sales. For some lenders, if you have been in business for some time and can prove you are a seasonal business, you may find more leniency and still be able to come to an agreement that works for both parties.

As with most things, the cons for e-commerce business loans are typically avoidable through due diligence and good planning, and it’s worth reiterating that you can prepare yourself for any issues by discussing loan options with your financial advisor. The pros, when planned for properly, will help you get ahead in your market, and by making informed decisions you can achieve the growth that your business needs to reach its goals.