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How to finance your e-commerce business

October 31, 2022
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For those looking to fuel the growth of their e-commerce business, this article outlines six simple ways to access finance. It covers funding options most appropriate for online ventures and helps business owners find the best solution for them. The article also addresses how Covid-19 turbocharged e-commerce markets and concludes by answering some of your most pressing questions.


It’s never been a better time to start an e-commerce business. Since Covid-19 redefined the way we spend money, the online retail market has grown substantially. Pair this with the relatively low barrier to entry of starting up an e-commerce company, and it’s unsurprising why entrepreneurs are queuing up to enter the market in their droves.

However, despite the UK being home to one of the most advanced e-commerce markets in Europe, if startups don’t secure substantial financial backing early on, it’s hard for them to survive past their infancy. In fact, the second biggest reason new companies go under is their cash reserves running dry.

Business owners looking to secure funding for their online store often face a dizzying array of funding options. While this abundance of cash flow solutions means that there's something out there for every e-commerce company, it can make it difficult for you to know where to start looking. To clear up some of this confusion, this article outlines six different ways to finance your e-commerce business before addressing some important things to look out for.

But first, let’s take a look at how the unique circumstances of the pandemic have changed the e-commerce industry forever.


Despite its recent surge in popularity, e-commerce is nothing new. Before the outbreak of Covid-19, the practice had been threatening traditional retail for years, with online transactions already making up 16.5% of the UK’s total business turnover in 2017. But while consumer behaviour has been shifting for some time, the pandemic accelerated this transition at a rate never seen before. As a result, analysts predict that e-commerce sales now account for more than one-quarter of all retail sales in the UK, which is expected to rise to a third in 2024.

Unfortunately, many businesses that were slow or unable to adapt to this changing retail market struggled to remain competitive. But while the rise of e-commerce shut doors on many traditional business owners, it provided opportunities for online entrepreneurs. According to a report from Your E-commerce Accountant, 35,589 new e-commerce business registrations were recorded in the UK in 2020. This represents a year-on-year increase of 43% from 2019.

However, despite these promising figures, even high-growth e-commerce businesses need to secure business funding to make it past the first year. With this in mind, let's take a closer look at e-commerce financing.


Compared to the costs of operating a brick-and-mortar store, it may seem like running an e-commerce business would be relatively inexpensive. However, whether you’re building an online business from the ground up or looking to scale an existing business, there’s still a wide range of expenses to factor in. This is where e-commerce financing comes in.

E-commerce financing is a cash flow solution that provides financial support to online retail stores. In their early trading days, most new online retailers don't have enough capital to cover necessary expenses such as employees wages, marketing costs, inventory and costs associated with shipping and storage. By accessing business funding, e-commerce businesses can cover these costs and invest in their future growth.

If this sounds like something that could benefit your business, here's a breakdown of six major types of e-commerce financing.

1. Business Loans

If you're looking for fast and effective financial relief, business loans might be the right funding option for you. Business loans are a type of debt financing that allows companies to borrow a certain amount of capital from a creditor. After an agreed period, the business is expected to pay the loan back with interest.

Fixed-term business loans are a common financial solution for e-commerce businesses. Under this type of loan, companies are given access to a lump sum, and the interest rate remains the same for the entire loan term. Due to their non-revolving credit limit, the borrower only has access to the capital once. This makes them particularly useful for businesses looking to invest in specific areas like new stock or online marketing.

2. Invoice Financing

Every business owner knows how frustrating late payments can be. Not only do they immediately interrupt a company's cash flow, but following up on late invoices also wastes time, money and resources. Fortunately, if your e-commerce business has to deal with late invoice payments regularly, there are things you can do to help.

Invoice financing allows you to receive payments quicker by freeing up capital that’s tied up in invoices. Depending on the lender, it can grant you 90% of the capital you’re owed upfront. This type of financing can also give you access to the funds almost immediately, so there’s no need to wait around.

Invoice financing can be a particularly attractive solution for e-commerce businesses that need to access working capital quickly. Since most online retailers need to purchase their stock from suppliers, they fast-track payments that would otherwise be delayed. This service also reduces the need to badger distributors, which allows retailers to maintain healthy professional relationships.

If your online business is interested in this type of funding, Kriya offers two invoice finance solutions. We offer a pay-as-you-go service that allows business owners to pick and choose which invoices they want to finance. This solution is ultra-flexible and ideal for one-off or seasonal needs. Alternatively, our subscription service allows companies to fund as many invoices as they like at a fixed-rate monthly fee. This option is better suited for businesses that seek regular financing.

If you want to learn more about either of these invoice funding solutions, youcan learn more about Kriya's Invoice Finance solution here.

3. Merchant Cash Advance

Also referred to as a business cash advance, a merchant cash advance is an unsecured type of business finance that gives vendors access to their future revenue today. This type of funding works by taking a small percentage of your future card transactions instead of charging interest or fixed monthly payments like traditional loans.

Depending on the lender, online businesses that use this measure can instantly access up to £500,000 in funding. This makes it an effective way to secure large amounts of capital quickly. Merchant cash advances also work in line with your business's cash flow, so if your business is earning less than usual, you aren't required to pay a lump sum that you can't afford. This makes it especially suited to e-commerce businesses that experience seasonal demand.

However, while this financial option may be viable to many business owners, there are things to consider before agreeing to its terms. Firstly, most merchant cash advances charge higher than average fees and take payments more frequently. This can make them harder to pay back than many traditional loans.

Secondly, because merchant cash advances are usually unsecured, they do not need to adhere to the same regulations as traditional financing companies. This means that interest rates with this type of loan can reach as high as 38%. To make sure you’re getting the best deal possible, you should only consider trusted lenders.

4. E-Commerce Venture Capital

Venture capital is a form of financing where a company receives financial backing from an individual in exchange for equity. The funding typically comes from a single angel investor or a venture capital fund, and the investment target is often early-stage startups with high growth potential.

Venture capital can provide a lifeline to burgeoning web-based businesses that are struggling to get off the ground. It supplies online companies with substantial amounts of capital to fuel early-stage growth. And on top of this, venture capitalists give business owners access to the investor's network. For many online startups, these extra funds and resources can spell the difference between failure and success.

While this may sound appealing, there are some things business owners should bear in mind before pursuing this option. When venture capitalists invest in your business, they usually look to have a certain amount of influence over your company. Therefore, if you want to retain decision-making power, relying on venture capital may not be the best option for you.

5. E-Commerce Grants

Another way your online business can invest in its future is by accessing e-commerce grants. Grants are a type of capital that businesses aren't expected to pay back. Since they are free of stipulations and won't burden your business with hefty payments down the line, making them preferable to most other funding options. They also rarely come with strings attached, allowing businesses to retain full control over their business.

As the name suggests, e-commerce grants are simply grants available to e-commerce businesses. However, they can be more challenging to access than other financing options due to their obvious benefits. In addition, applying for them can be a time and labour-intensive process. So if you're serious about pursuing e-commerce grants, you'll have to be willing to invest the time and effort.

While a small amount of private e-commerce business grants are available, most grants are provided publicly through the UK government, Scottish Parliament or Wealth and Northern Ireland Assemblies. UK-based businesses can use the government's 'business finance support finder' to find out more about what grants are available and how to apply. The tool allows you to search for grants based on location, size and business activity.

6. Crowdfunding

If you're not interested in the regulations and charges that come alongside traditional financing, crowdfunding might be for you. Crowdfunding refers to raising funds through a large group of people, including friends, family, investors and customers. Businesses often pitch their ideas on dedicated crowdfunding platforms to communities that may be interested in investing.

Crowdfunding could be a suitable financing method for e-commerce businesses for many reasons. It can provide your business with a no-strings-attached capital, allow you to retain full control, and is a great way to get the word out about your business. Due to the online nature of crowdfunding, it's an effective way to get your brand noticed by your target audience.

However, while thousands of successful businesses owe their success to crowdfunding campaigns, it doesn’t come without risk. More than two-thirds of all crowdfunding campaigns don’t meet their goals. This means that there's a chance your e-commerce business may not get the funding it needs. If you’re not put off by these statistics, there’s a variety of platforms you could try, with Kickstarter, GoFundMe and Crowncube being the most popular.


All the funding options we've listed above come with distinct advantages and drawbacks, and some may be more suited to your business than others. When deciding the best course of action, it's essential to consider your credit history, how quickly you need access to funding, how much capital you'll need, your interest position, and your willingness to give up equity.

Establishing the answer to these questions will make it easier to decide which funding option is the best fit for your e-commerce business.


What is an e-commerce business?

An e-commerce business is simply any business or commercial transaction that involves the transfer of goods across the web. E-commerce exists globally and in several industries, and due to rapidly changing consumer habits, the market is expanding year on year.

What is e-commerce finance?

E-commerce financing is any cash flow solution that provides capital to online businesses. There is a range of options available for e-commerce businesses looking to access funding. Common types of financing include business loans, invoice financing, merchant cash advances, venture capital or business grants. Businesses use e-commerce finance to cover various expenses like employee wages, online marketing and costs associated with packaging and logistics.

How do you finance an e-commerce business?

If you’re looking to fund an e-commerce business, there are many different solutions to choose from. Depending on the unique needs of your online business, you can access business loans from banks or private lenders, obtain invoice financing or apply for government business grants.

Is e-commerce a profitable business?

E-commerce businesses can be highly profitable. Even as the market cools down from Covid, the industry is still showing signs of growth. Due to this market expansion compared with the relatively higher costs of operating brick-and-mortar stores, it's typically easier for e-commerce businesses to yield a healthier profit.

What are e-commerce business grants?

E-commerce business refers to grants available to online businesses. For business owners looking for lump sums of capital, this type of financing allows them to manage their cash flow difficulties and scale their business into the future. While a small amount of private e-commerce business grants are available, most grants are provided publicly through the UK government, Scottish Parliament or Wealth and Northern Ireland Assemblies.

What is invoice finance?

Invoice financing is a facility that allows business owners to receive payments quicker by freeing up capital that's trapped in invoices. The solution can grant you 90% of the capital you're owed upfront, depending on the lender. This type of financing can also give your access to the funds almost immediately, so you can address your cash flow difficulties quickly.

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