There’s one frustrating fact every online retailer with growing pains will come to know — banks just don’t understand eCommerce. 😩

With the eCommerce industry generating a staggering $4.28 trillion in sales in 2020 (and set to expand to $6.54 trillion by 2023), you’d think banks would jump at the chance to be a part of this market. 

Unfortunately, it’s more the opposite.

Many (if not most) traditional banks hide their cash from eCommerce businesses like their lives depend on it. They hit eCommerce businesses with strict requirements like high collateral demands and long sales history, which excludes most store owners from the jump. 

Even if a store does meet the banks’ lofty requirements, it’s still not plain sailing to secure funding — banks can catch them out with other terms. For example, the need to service balloon payments, which would affect an eCommerce store’s liquidity and defeat the purpose of seeking funding to begin with. 

But is there any logic behind their skepticism? Today, we’ll zoom in on some of the reasons eCommerce opportunities fly over the heads of traditional banks, and explore some of the other eCommerce funding options you can turn to if traditional banks continue to give you the cold shoulder.

Tired of rejection from old-school banks? Find greener pastures with SellersFunding.

Banks Don’t Get Ecommerce: What We’ll Cover

  • How the Disconnect Between Banks and Ecommerce Began
  • 4 Frustrating Reasons Banks Just Don’t Get eCommerce
  • The Banks Won’t Back You? Don’t Despair
  • The Top Online Funding Options (that Pick Up the Slack from Traditional Banks)
  • The Keys to Thriving Without the Banks on Your Side

How the Disconnect Between Banks and Ecommerce Began

As our lives become more fast-paced, many consumers have turned their attention to online shopping.  

The lure of convenient, easy comparison shopping and bargain hunting, combined with secure payment options and protection guarantees has overcome any initial reservations about eCommerce — leading to online selling leaping from just 5.1% of the retail market a decade ago, to a whopping 21.3% in 2020.

Innovative DIY eCommerce platforms like Shopify and BigCommerce have also helped accelerate the eCommerce boom, going from strength to strength and ripping the market share from the hands of retailers. 

But although this is great news for eCommerce sellers, investors, and consumers — the banks still aren’t convinced.

The sudden influx of eCommerce sellers in the market blindsided traditional banks who enjoyed their cozy brick and mortar retail bubble. Worse still, the banks’ processes and rules weren’t built to cater to eCommerce’s innovative structure or fast pace.

The outcome? Traditional banks have been left behind when it comes to the dramatic market shifts occurring in the retail market. And eCommerce sellers are left wondering where to turn for help.

4 Frustrating Reasons Banks Just Don’t Get Ecommerce

  1. Ecommerce: The Retail Industry’s Baby

Launched in 1979 by Michael Aldrich, the eCommerce industry is the youngest retail member.

Its relative youth causes banks to view eCommerce stores as inexperienced and lacking stability — meaning they’re less willing to take a ‘risk’ on newbies, when they could make a safer bet on an established, traditional retail store with eCommerce as an arm, rather than its entire business model.

Then there’s the clout issue. To put it bluntly, most old-school banks are career snobs. They tend to favour founders who have had traditional career paths in business and expect a successful track record. 

As many eCommerce sellers are first-time success stories or have taken a non-conventional career route, they don’t get the respect they deserve from traditional banks.

  1. Banks are stuck reminiscing about the high street retail hay-days 

Once upon a time, the high streets ruled the roost. Stores were jam-packed most days, and shoppers showed up in droves on key holidays and promotional events like Labor Day and Black Friday (cue embarrassing clip of shoppers fighting over flat-screen TVs).

But as shopping habits have changed, brick and mortar retail has shrunk. 

In the UK alone there are 50,000 fewer retail shops than there were 10 years ago. Iconic stores like Woolworths, Debenhams, Mervyns, and BHS, have either shuttered for good or reduced their operations to a shell of their former glory.

Banks have noticed this decline but seem to be holding onto the hope that the high streets and malls will return to their top spot. 

  1. All the banks see is risk, risk, and more risk ⚠️

Are you a pure play eCommerce store? Risky. Sell on Amazon? Even Riskier. Want to stock new innovative products that you haven’t tested in the market yet? You’re kidding, right?!

As banks tend to work with the top dogs in retail, where monthly revenues in the millions aren’t uncommon, all they see when they look at eCommerce businesses is a ticking time bomb.

Because their processes, KPIs, metrics, and requirements are set up to serve big retailers rather than hustling online sellers, they lack the appropriate tools to effectively gauge eCommerce store progress — so there’s no way for them to know if an online store’s results are good or bad relative to typical benchmarks.

  1. Uncertainty in the global markets makes banks scared to delve into eCommerce 

Instability in the global market and Brexit have had great success at injecting fear into traditional banks, causing them to tighten their purse strings even further. 😨 

If there was ever a time for banks to double-down on their ‘safe bets’ and shelve any eCommerce investment, this is it — which means eCommerce sellers could be waiting in vain for help from banks. 

But the reality for you as a seller is that competition isn’t slowing down. In fact, the opposite is true. If you want to actively reach for the next growth level, you must take decisive action to get your store the funding it needs.

The Banks Won’t Back You? Don’t Despair

If you opened an eCommerce store in the ’80s and ’90s and were rejected by banks when you needed funding, you were kinda out of luck. There simply weren’t many other options. 

Luckily, things have changed. 

There are now many online funding providers that fully understand eCommerce and are ready to welcome you with open arms. 

Here are just a few of the benefits of partnering with a modern funding provider:

  • Relaxed requirements: Unlike traditional banks, most modern funding providers will work with you — flaws and all. They won’t shake you down for collateral or request spotless credit scores from you and your business. 👌🏼
  • Fast process and cash disbursement: The new school of funding providers understand eCommerce’s rapid pace and don’t hang about when it comes to application approval. With some providers, you can have cash within 48 hours!
  • Flexible funding: Use the money as you please — whether it’s setting up an online shop in a new territory or launching a new product, you’ve got the all-clear! 💪🏻

The Top Online Funding Options (that Pick Up the Slack from Traditional Banks)

Now that you know there are some better-suited options for eCommerce funding, it’s time to get up to speed on what they are. 

Let’s take a look:

Working Capital and Revenue Advances

Working capital funding looks and feels similar to the funding you get from banks but come with one handy exception — they’re super flexible! You can use working capital funding such as a line of credit or revenue advance for anything from buying stock or product development, to stabilising cash flow or refinancing existing debts. 

Here’s what you may need to secure a cash advance:

  • High sales volume and revenue
  • At least one year’s worth of sales history
  • Proof you can repay the fixed, one-time interest sum and cash through your sales (for a revenue advance)
  • Show you have enough liquidity to stay operational once the funder takes their cut

Need some capital to keep your store ticking along smoothly? Find out more about our Working Capital funding.

Invoice factoring

If you’ve got an accounts receivable arm to your business, you may have just struck gold — especially if you struggle to recover payments on your own.

Sell your unpaid invoices to a factoring company at a discount to an invoice factoring company. They’ll then add a fee and release the cash to you. It’s that simple.

What you might need to secure invoice factoring:

  • Wholesale/accounts receivable arm to your business.
  • Customers with good credit.
  • Enough due invoices with high figures to make the fees and effort worthwhile.

Crowdfunding

Got razor-sharp marketing and storytelling skills? Put them to the test to raise funds for your store through a crowdfunding campaign on a dedicated online platform. Drive traffic to your landing page, and people will decide whether to invest in your business (or not). There are three crowdfunding types: debt, donation, and equity crowdfunding.

What you need to secure crowdfunding:

  • An innovative or eye-catching product idea.
  • Patience (drumming up supporters could take a while).
  • Experience in running successful marketing campaigns.

Peer-to-peer lending

Why go to the banks when you can sidestep all the admin and secure funds directly from an individual? You can do this all quickly (and regulated) online by specialised platforms that will add a fee for their trouble.

What you may need to secure peer-to-peer lending: 

  • Have good credit to secure the best interest rates.
  • Be happy to forgo early repayments.
  • Be able to cover the facilitating company’s fee and the loan.

Angel investing

Hate the thought of monthly repayments? So long as you don’t mind selling a stake in your company and having someone to answer to in your business decisions, angel investing is a good shout. Your investor will be a high-net-worth individual and may have a business background, so you may even be able to tap into their network and experience to push your business forward.

What you need to secure angel investment:

  • A proven business concept.
  • Strong company vital signs, i.e., high sales, low churn rate, good profit margin.
  • Have your paperwork ready to go, i.e., a business plan, pitch deck, cashflow forecast, and company registration documents.

The Keys to Thriving Without the Banks on Your Side

With traditional banks showing no signs of putting their skepticism or archaic rules aside to fund upcoming eCommerce businesses, you’re probably better off looking for support elsewhere. 

Flexibility is critical to your success in this business, particularly in uncertain times — so, let go of any preconceived notions about what eCommerce funding should look like, investigate which funding types match your unique circumstance, and test the waters with a partner who gets it.

Whatever you do, don’t let the traditional banks’ delay in catching up to consumer preferences stunt your progress. Set the wheels in motion with one of the many eCommerce funding options, and watch your store soar! 

Ready to take your brand to the next level with eCommerce funding? Discover your options.

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