Depending on your ecommerce goals, an SBA loan can be a great way to secure the funding you need to grow. However, not all ecommerce businesses will qualify, and the application process can run in conflict with short term goals. In this blog post, we will take a closer look at SBA loans and whether or not they are the right choice for your ecommerce business.
SBA Loans for Ecommerce: Here’s Everything you need to know:
- What Is an SBA Loan?
- How to Qualify for an SBA Loan
- Types of SBA Loans for Ecommerce
- Drawbacks of SBA Loans for Ecommerce
- Alternative Funding Options
What Is an SBA Loan?
SBA loans are loan programs that are backed by the Small Business Administration, offering business owners access to capital they may not otherwise be able to obtain. They’re typically used for startup costs, purchasing equipment and inventory, marketing expenses, working capital needs and more. SBA loans can also provide businesses with access to lower interest rates than other forms.
SBA loans are offered through SBA-approved lenders, such as banks, credit unions, and online lenders. The SBA guarantees a portion of the loan so that the lender is more likely to approve it. They often have longer repayment terms than traditional business loans with some offering up to 25 years.
How to Qualify for an SBA Loan
In order to qualify for an SBA loan, businesses must meet certain criteria. These include but are not limited to:
- Fewer than 500 employees (the SBA definition of “small business”).
- The business must have been in operation at least two years prior to applying.
- The business must have a good credit history (no past due accounts of more than 90 days).
- SBA loans also require that the borrower provide some form of collateral in most cases.
Types of SBA Loans for Ecommerce
The SBA offers several programs specifically geared towards ecommerce businesses. Two of the most popular are SBA 7(a) loans: the SBA CAPLines program and SBA Export Working Capital Program.
The SBA CAPLines program provides up to $5 million dollars in lines of credit to businesses that need working capital over a period of time. SBA loans through this program can be used for inventory and accounts receivable purchases, contract performance, and more.
The SBA Export Working Capital Program is intended to help businesses that export goods or services increase their international sales by providing them with access to lower interest rates and longer repayment terms than traditional financing options.
Drawbacks of SBA Loans for Ecommerce
What specific goals does your ecommerce business have for growth? If a busy season is approaching and you have an opportunity to add a large order of product, you need the cash quickly. If a competitor stocks out and you see an opportunity to gain ground with your listing, there’s no time to waste.
In these cases, the lengthy process of securing an SBA loan does not fit your needs. If you’ve only been selling online for a year, you likely don’t have enough history to be approved. You should also strongly consider whether or not you’re willing to provide collateral against a loan. Below, we’ll cover options that do not require this.
Consider all your options and choose the one that meets your needs best. SBA loans can be a great source of funding, but other options are more tailored to the specific industry needs in ecommerce.
Cash Advance for Ecommerce Sellers
Cash advance is another great option. With a cash advance loan, you commit to selling a portion of your future sales to get the cash today. Cash advances can be more expensive if you use them regularly over a long period of time. But they come with faster approval times and less stringent requirements than most loans, especially SBA loans. This can be especially beneficial for new ecommerce businesses that don’t have a long credit history or the time to go through the SBA loan process.
Working Capital for Ecommerce Sellers
There are funding providers the deal specifically with the working capital needs of ecommerce sellers. These funding options boost cash flow to cover day-to-day expenses with a longer repayment period than cash advances. Working capital financing typically offers short-term loans with repayment terms of 90-180 days or less. They are designed to help businesses manage their cash flow and can be used for anything from paying inventory suppliers to covering marketing costs.
SBA loans are one option to fund your ecommerce business, but it’s important to consider your goals. You might have more options than you think.
