How to Fund Your DTC Brand

May 17, 2021

As your eCommerce business grows, so will your need for reliable working capital. That way, you can invest in opportunities to keep sales momentum going and maximize profits.

So how can you get the capital you need to fund growth?

In this post, we break it all down, with information on common eCommerce cash flow problems and five common funding solutions for your DTC brand.

Common eCommerce Cash Flow Problems

Defined as money coming into and out of a business, cash flow is vital for growth. When you have a reliable source of cash, you can easily cover expenses, make payroll, invest in new or unexpected opportunities, and more.

The reality is, most businesses experience cash flow issues — even if they’re making a profit. In fact, Quickbooks’ “The State of Small Business Cash Flow” report found that 61% of business owners regularly struggle with cash flow.

For eCommerce sellers, cash is often tied up in delayed sales payouts and/or inventory that isn’t selling fast enough. At the same time, sales can suddenly spike, leaving sellers facing an exciting surge in growth. Of course, that excitement is also coupled with fear of running out of stock.

If this has happened to you, you know that cash is necessary to keep up with demand. It’s no surprise then that eCommerce sellers often look for financing to help bridge cash flow gaps and achieve sustainable growth.

5 Ways to Fund Your DTC Brand

If you’ve ever researched small business and eCommerce lending options, you know that there are a lot of them. From traditional small business bank loans to eCommerce-specific financing, there seems to be something for every business type and use case.

However, not all financing is created equal. The key is to find the right one for your particular business and need. To help, we’ve outlined five common funding solutions that can help you maximize cash flow and invest in growth.

1. Credit Cards

Business owners often use credit cards to get their businesses off the ground and cover ongoing expenses. Does this mean you should, too? Here, we breakdown how business credit cards typically work as well as their pros and cons.

Credit Limits & Terms: Your actual credit limit depends on a number of factors. According to Experian data, the average credit limit for a business credit card is $56,100.
Rate & Repayment:
- You’ll be responsible for interest payments if you do not pay your monthly payments in full and on time every month. According to CreditCards.com, interest rates for business credit cards average 14.22% APR. Your actual rate will depend on your overall credit profile.
- You’re required to pay your balance monthly and, depending on the credit account, you may be subject to an annual fee.
Pros:
- Credit cards allow you to “buy now, pay later”
- Build personal and business credit
- Earn cash back rewards on purchases, plus other perks
- With proper usage, you can earn credit limit increases
Cons:
- Credit limits only go so far
- Interest payments can quickly compound if you don’t use your credit card responsibly
- It’s not cash
Right for you if: You are a startup that is financially capable of meeting repayment obligations and you want to earn cash back on purchases.

2. Bank Loans

According to an SBA report from September 2020, traditional banks lent $644 billion in small business loans in 2019 alone. An impressive number, especially considering that so many small businesses need financing.

That said, small businesses have long complained that they feel underserved by banks. This is because banks tend to lend to larger, established businesses with years of operating history and stellar credit. Banks are extremely risk-averse organizations that rely on latent underwriting processes ultimately designed for businesses of a larger scale.

All this to say, a bank loan still might be a good option for you. Here’s how they work:

- Funding Amount & Term: Typically up to $1 million with terms up to 25 years.
- Rate & Repayment: Rates range from 2.58% to 7.16% with monthly payments.

Pros:

High dollar loans amounts

Low interest rates for qualifying small businesses.

- - Longest terms

Cons:

- Long application process requires a lot of paperwork, including bank statements, tax returns, business plans, and more.
- Decisions and funding can take weeks, sometimes months.
- Low approval rates for small and online businesses.
- They rely heavily on your personal credit score and profitability of the business
Right for you if: You are an established business with a proven track record of sales, years of operating history, and a high personal credit score — and you don’t need financing immediately.

3. Online Business Loans

Online business lenders exist to help small businesses get financing when they need it, with some promising same day approvals and funding. They are especially popular for businesses that don’t qualify for a traditional bank loan or line of credit. But they can come at a price. For example:

- Funding Amount & Term: Typically $5,000 – $500,000 with 3-36 month terms.
- Rate & Repayment: APRs range from 9% – 99% depending on the provider and your credit profile. Repayment schedules are either daily, weekly, or monthly auto-debits.

Pros:

- - Simple, online application processes that typically take 10 minutes to complete
  - Minimal to no paperwork required
  - Decisions and funding in as fast as 24 hours
  - They don’t put a lot of emphasis on personal credit, with minimum FICO requirements as low as 500.

Cons:

- Higher interest rates
- Short term
- Daily auto-debit repayments can disrupt cash flow for some businesses
Right for you if: You need a loan quickly, have poor personal credit, and have enough cash in-flows to keep up with fixed daily payments.

4. Invite-Only Financing Programs

As an online retailer, you might be eligible for certain invite-only financing programs, like Amazon Lending, Shopify Capital, or Stripe Capital, to name a few. Typically, these programs are affiliated with an eCommerce site or payment processing company and they use your sales history on their respective platform to determine eligibility. Here’s more about how they work:

eCommerce funding options:

Amazon Lending

- - Loans up to $750,000 for qualifying Amazon sellers only
  - According to seller forums, rates are anywhere from 3% – 16.9% APR
  - Payments are automatically deducted from your Amazon payouts
  - Simple, online application
  - Decisions are typically made within five business days
  - Access to the Goldman Sachs’ Marcus Business Line of Credit
  - Must have a “proven track record of growing sales” and offer “the highest level of customer satisfaction” as an Amazon seller to qualify

Shopify Capital

- Loans and cash advances up to $1 million for qualifying Shopify users only
- The loans are paid off over a 12-month period
- Payments are deducted as a fixed percentage of your daily sales, so the actual payment amount changes
- Online application with no credit check and decisions in 2-5 business days
- If approved, funding within 2-4 business days
- Must use Shopify’s point-of-sale system or website hosting services to qualify

Payment processing financing

If you host your own eCommerce site and use a payment processing company like Stripe or Square, you might qualify for their respective financing programs:

Stripe Capital

- - Loan amounts are not publicly available, but the average Stripe Capital loan size is said to be $10,000 – $20,000
  - If you qualify, you’ll see three loan offers in your Stripe account
  - Decisions based on Stripe history — no credit check or lengthy application process involved
  - Funds in as fast as one business day
  - No interest payments — instead, you’ll pay a fixed percentage fee that is deducted from daily sales

Square Capital

- Loans from $300 – $100,000, with offers based on your Square sales
- Auto-payments based on fixed percentage of daily sales
- Simple online application with no credit check and instant decisions
- Funding in as fast as one business day

More about invite-only financing

Pros:

- These invite-only programs are convenient for sellers who are too busy to look for other options.
- In general, payments are based on a fixed percentage of your sales, so you can confidently make payments even on slow days. For example, payment amounts are higher on busy sales days and lower on slow sales days.

Cons:

- You can’t apply directly for any of these programs unless you get an offer in your account.
- They only factor in sales on their respective platforms. Because your entire eCommerce portfolio is not considered, you might not get the maximum amount of funds that you are actually eligible for.

Right for you if: You get a compelling offer in your account, need financing relatively quickly, and don’t have the time to look for other options.

5. Instant Advance

Instant Advance is a funding solution from Payability, a financing company designed specifically for eCommerce sellers. It is an advance on your future receivables — up to $250,000 — that you could get in as fast as one business day. Use the funds to invest in bulk inventory, launch marketing campaigns, hire a new employee, and more.

Here’s how it works:

- Funding Amount & Term: Up to $250,000 (actual amount is typically 75% – 150% of one month of sales)
- Rate & Repayment: Because Payability is not a loan company, there is no interest rate. Instead, you’ll be charged a flat fee (which starts at 0.50% per week) and could get a fee rebate if you pay back early.

Pros:

- - 10-minute online application with no paperwork or credit check required
  - Decisions and funding within 24 hours
  - Decisions based on your entire eCommerce portfolio, not just one platform or marketplace
  - Prepayment benefits
  - Pairs well with Payability’s other financing solutions, Instant Access (which provides daily, real-time payouts on your sales) and the Seller Card (which comes with 2% cash back on purchases).

Cons:
- Funding amount does not include offline sales channels
- There is a credit limit based on what you actually sell or expect to sell (though you’ll be able to get more as your business grows)
Right for you if: You want a flexible financing solution that factors in your entire eCommerce portfolio, gets you funding in as fast as one business day, and does not impact your credit score.

Choosing the Right Funding Option for Your Business

As you can see, there are a variety of business funding options out there. Keep in mind that many of these financing solutions can be used together to help you maximize growth.

For example, let’s say you sell on multiple marketplaces, including Amazon, Walmart.com, Tophatter, and Newegg. You get a lending offer from Amazon Lending and are approved after applying, but the amount is lower than you need.

One option is to see if Amazon Lending gives you a new offer. Or, you could leverage the rest of your eCommerce portfolio and apply for a Payability Instant Advance to supplement the Amazon Lending loan.

Whatever the case may be for your business, you’ll be able to find the right solution (or solutions) by considering the following variables: