Out of stock — any new or high-growth online seller knows the frustration of running out of inventory. While it can be a good thing (you’re selling everything you got!), being out of stock all the time isn’t viable for a business in the long run. You could be missing out on more sales if you had the right amount of inventory on-hand.

The challenge? It takes strategic planning to balance the amount of inventory you keep at any given moment. A big part of your strategy is making sure you have enough cash on hand to buy inventory when you need it.

And, buying inventory is expensive. Depending on what you sell, you could need to consistently spend hundreds or thousands of dollars to keep up. Where can you get that kind of cash?

How to Finance Your eCommerce Inventory

Here’s five common ways to finance inventory purchases to avoid going out of stock. Each approach has its advantages and disadvantages, so consider what’s best for your business goals.

1. Credit Cards

One of the first places to turn to for financing is using personal or business credit cards. They’re easy to open (or you might have one already). Credit cards can be great for paying general expenses — including inventory purchases when you need to. When you spend more, you can also rack up rewards points or cash back perks that you can use to pay for other parts of your business, too

However, credit cards alone might only get you so far. Your credit limit might not be high enough to make repetitive expensive inventory purchases. You could easily max out your credit cards, which can still put a strain on your business.

Also, like any credit card user, you need to pay attention to paying off your minimum balance on time. Otherwise, you can easily go into credit card debt that costs you more in the long run.

Takeaway: Business credit cards are a great place to start, but you’ll probably need more financing alongside them.

2. Merchant Cash Advance

Not all sellers have heard of cash advances or understand how they work. But, they can make a big difference for your business.

A merchant cash advance is when you receive a lump sum of cash from a capital provider in return for selling to the capital provider a set amount of your future sales revenue at a discount. It’s not a loan or debt.

Here’s how cash advances work:

  • A capital provider advances you a lump sum like $10,000 to purchase $10,500 of your future revenue at a remittance rate of 10%. Your advance is based on your current online sales.
  • The $10,000 advance is delivered right to your bank account and you can use the cash for anything you need like inventory purchases.
  • Then, the capital provider receives 10% of your daily sales revenue until the total $10,500 is remitted.
  • The daily remittance amount changes daily. If you sell more in a day, you’ll pay more. If you sell less, you’ll pay less.
  • The remittance amount is automatically debited from your bank account.

Merchant cash advances are a great financing option for online sellers for a few reasons:

  • Receive funding in as fast as 24 hours or a few business days
  • Simple online applications
  • Cash advance is based on your sales, or current health of your business
  • Can use alongside another financing option like a traditional loan
  • Do not require you to put up collateral
  • Keep your business and your personal finances separate
  • Many cash advance providers do not require credit checks

Takeaway: Cash advances are an excellent way to receive quick funding and they’re designed to work for online businesses.

Check out Payability’s Instant Advance solution. They look at your online sales across popular marketplaces and eCommerce platforms such as Amazon.com, Shopify, eBay, Newegg, Walmart, and more to provide you up to $250,000 in as fast as 24-hours (without any credit checks). Instant Advance works seamlessly alongside or in the place of Shopify Capital, Amazon Lending, and other financing options.

3. Loans

A traditional method of financing is getting a loan from a bank, credit union, or online lender. When you receive a loan, you’re also taking on debt, meaning you owe capital to the lender that you’re required to pay back over predetermined terms and interest rate. But, repayment terms are usually favorable like monthly payments spread over 3 to 10 years.

Like most financing options, there’s different types of loans like:

  • Personal
  • SBA
  • Bank
  • Lines of Credit
  • Home equity

When comparing loan options, you should also note if it’s secured or unsecured. A secured loan requires you to pledge collateral like your house or car. In the case you can’t pay back the loan, your personal collateral is used as payment to the capital provider.

Overall, there can be a few challenges with loans for online businesses.

  • Approval processes can take weeks— which you don’t always have time to wait for
  • Secured loans can require you to mix your personal finances with your business
  • Loans can have low approval rates for online businesses as they focus on credit scores, tax history, and years in business
  • Funding amount isn’t based on the health of your business

Takeaway: Loans are usually a better fit for enterprise, established businesses. You’re more likely to get approved and can attain better rates.

Learn more about the differences between loans and merchant cash advances.

4. Accelerated Daily Marketplace Payouts

Payability also offers Instant Access or accelerated daily payouts for sellers paid on delayed terms by the marketplace they sell on including Amazon.com, Newegg, Walmart, and more. Instant Access turns a net 14 payment into net 1 overnight. Instead of waiting 14+ days to get paid by the marketplace, sellers can get paid the next day, every day for their sales for a fee.

There are no credit checks associated with applying as approval is based on your marketplace account health and sales performance. Sellers from $2,000/month in sales to $20 Million+/month in sales use Instant Access to boost cash flow and accelerate the growth of their eCommerce businesses. It’s not so much about size or business model, Instant Access customers all have two things in common: they are selling on marketplaces and they are scaling their businesses rapidly.

Takeaway: You can finance your eCommerce business risk-free by signing up for Instant Access and getting the profits from your sales faster. That way you’ll always have cash on hand to reinvest in your business without taking on the risks associated with loans or credit cards. Instant Access can also protect Amazon sellers from the repercussions of an Account Level Reserve (previously known as an Unavailable Balance). This occurs when Amazon holds back all or part of your payout for more than the usual 14 days.

How to Choose the Right Financing Strategy

So, what financing option should you choose? Well. It depends! Every business is in a different financial situation. What works for your business might not be best for someone else.

As you compare options though, it can help to consider:

  • Time in Business: Are you just starting out and need to test a new idea? Or, are you a proven high-growth seller who needs a better way to keep up with constant inventory demands?
  • Approval: Are you likely to get approved for the funding option? Do you need to submit a credit score?
  • Amount: What’s the max amount you can be funded? How much do you actually need?
  • Time: How long will you have to wait for the funding?
  • Repayment: What are the terms for paying back the financing? How much will it cost you?
  • Business Goals: Does the financing method align with you how you want to run your business or meet your goals?

If you still feel like you need to explore other financing options, check out an in-depth list of funding options for online businesses.

Author Bio:

Jillian Hufford has over seven years of educating merchants on digital commerce and marketing growth strategies and best practices. She is a frequent author and thought contributor on DTC and B2B commerce, SaaS software, and B2B content marketing. She also contributes regularly to CMSWire. Connect with Jillian on LinkedIn: @JillianHufford

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