Funding Alternatives for When the Bank Rejects Your Ecommerce Business

Here’s what to do next when the bank rejects your ecommerce company’s loan application You won’t always have all the cash you need at hand while running your ecommerce company. Sometimes, you’ll require more funding than you have at the time to keep the wheels turning.  That’s especially true if you have major plans and […]

Here’s what to do next when the bank rejects your ecommerce company’s loan application

You won’t always have all the cash you need at hand while running your ecommerce company. Sometimes, you’ll require more funding than you have at the time to keep the wheels turning. 

That’s especially true if you have major plans and haven’t been very long in the industry. In such case, your only choice is to seek funding alternatives for your ecommerce business so you can take care of things.

So, what’s your go-to option for extra capital? It’s probably the same as what every other ecommerce business owners go to when they need investment — banks.

The idea usually comes like, “I need some cash to get more inventory; I should take out a bank loan.” And that’s how several UK business owners decide to get financing for their ecommerce ventures from banks.

The option is alright, but there’s often a slight problem. Most banks do not get excited about the idea of funding ecommerce businesses. So, they may not want to lend you the money. And in that case, your options lie in finding funding alternatives for your ecommerce business. 

That’s what we’ll discuss in this blog. Here’s all you need to know about funding options for ecommerce companies. 

What are Ecommerce Loans?

Ecommerce loans are any form of financing available for retail businesses to start or expand their online operations. These loans cover all necessities for developing an ecommerce venture which may even include a brick-and-mortar shop. In addition, they come with varying rates, terms, required qualifications, and payment tenures.

So, lenders give ecommerce loans primarily to enable retailers to upscale their online operations. And speaking of lenders, ecommerce loans can be from banks or other business financing organisations. Some common examples of such loans include;

Term Loans

This type of loan involves a specific amount of money with a particular repayment schedule based on a fixed or variable rate. The payment period is typically between six to eighteen months. In addition, you can quickly get this type of financing from online lenders and credit unions.

SBA Loans

SBA loans are bank loans with mitigated risks to the lender. The Small Business Administration liaises with banks to provide outside funding for ecommerce businesses. The point of their liaison is to guarantee the loans to the banks. Thus, they make the banks more willing to give out loans by reducing their worry points.

Reasons Banks Won’t Give You an Ecommerce Business Loan

There are several reasons banks may decide not to provide funding for your ecommerce business. However, we’ll categorise them into two primary groups. The first broad category includes economic reasons, while the second deals with the individual’s (your) credibility. That said, let’s flesh out the points quickly, starting with the economic reasons.

Banks Think the Ecommerce Industry is Still Young and Inexperienced

Michael Aldrich effectively launched the ecommerce industry in 1979. So, compared to the other retailing avenues, one can say it’s quite young. So, that’s how many banks see the industry. As a result, they’re often sceptical about dealing with the ecommerce sector.

Then again, banks tend to favour “stable” traditional retailers with a successful track record over flailing ecommerce retailers even if they also have excellent track records. Hence, they typically encourage ecommerce business owners to look for alternative funding means.

All Banks See With Ecommerce Businesses are Risk, Risk and More Risks

“Do you run a purely ecommerce venture? Banks think that’s risky. Do you primarily sell on Amazon? Banks see that as a riskier venture. “Okay, you want to get a loan? What for? Do you intend to purchase new innovative products that are yet to gain significant market traction? No, we don’t do that here.”

Banks have tailored their KPIs, processes, metrics and loan requirements to suit the top dogs in the retail market. So, aside from the big players, most other ventures often fail to measure up to some standards. Moreover, if you don’t measure up to standards for banks, they see it as a big risk. And, of course, ecommerce businesses are the riskiest of them all – according to most banks. 

Global Market Uncertainty is a Problem

Brexit, inflation worldwide, and general global market instability have successfully injected fear into most banks. Hence, they’re more sceptical about giving out loans than before. As a result, most UK banks are holding on to their bets and playing it safe when financing ecommerce businesses and the retail industry generally. 

So, it’s not surprising that banks may choose to tighten their purse strings and avoid dealing with the “risky” ecommerce businesses. That’s why you may be unsuccessful in securing outside funding for your ecommerce business from banks.

Personal Reasons

Below are some personal faults that may discourage banks from funding your ecommerce business.

Previous Defaults and Derogatory Accounts

This issue refers to businesses that have a history of collecting loans. Banks will look through your previous accounts to see how you performed on all of them. Needless to say, a bad record on any of those accounts can harm your chances of securing additional finances. 

Furthermore, if your business has received a statutory demand or negative court judgement in the past, the bank may refuse your application. Generally, a derogatory note on any of your previous accounts will hurt your chances. Alternatively, not providing enough detail on your account histories may also cause the banks not to trust your application.

Lack of a Structured Trading History

Being in the business for long doesn’t necessarily mean you keep an adequate record of your operations. Generally, banks will look at your sales record for the past year while considering your credibility for a loan. In addition, most lenders use a healthy trading history to gauge your ability to pay back. 

So, if you can’t provide a comprehensive record of your business dealings to the bank, they may be sceptical of your credibility. Hence, the bank may decide it won’t give you an ecommerce business loan unless you provide the requested information. 

Bad Personal Credit Score

The bank may not even consider your application if you’re applying for ecommerce business financing with poor credit. A good credit score is essential even if you’re operating your business in partnership with other individuals. That’s because any of the other directors having a bad personal credit score may also negatively impact your ability to secure a loan for the business. 

No Security

You can’t secure a bank loan without providing some security to reduce the risk to the lender. Hence, not having security automatically disqualifies you for a bank loan. Most banks will request for at least a personal guarantee from the business’ directors. The personal guarantee indicates that the director or owner is declaring themself liable for the loan should the business be unable to pay its debts.

Essentially, a personal guarantee means the directors will be responsible for repaying all debts and additional fees on behalf of the business. Without such arrangements, a lender will be less likely to agree to provide investments for your ecommerce business or give you loans. 

Top Funding Alternatives For Your Ecommerce Business

Traditional finance institutions, particularly banks, typically tend to underserve ecommerce businesses. One may even describe their outdated underwriting requirements as biased against ecommerce businesses. So, what alternative financing options can you take for your ecommerce business? Below are the top funding options you can choose to help push your venture when the banks refuse you.

Venture Capitals

You can get several forms of private investments for your ecommerce setup. But one of the few that are often ready to deal with online businesses is venture capitalists. So before we dive fully into why and how, let’s first look at what venture capital is.

Venture capital is your typical form of business investment. Hence it’s equity from investors. However, what differentiates it is that venture capitalists primarily provide the funding for small businesses with a propensity for long-term development. 

Expectedly, venture capitalists are wealthy investors looking to put their money to use with hopes of multiplying their returns in the future. However, that doesn’t mean only wealthy individuals can be venture capitalists. Many venture capital corporations provide medium and long-term investment in business with expectations of earning dividends down the line.

In addition, venture capitalists get some shares for their equity when they provide alternative funding for your ecommerce business. As such, receiving financing from this source means you must be ready to relinquish part of the business and the decision-making to the investors. 

Considerations for VC Funding

Of course, giving out some of the company’s shares in exchange for funding isn’t a bad idea. Most of the biggest corporations in the world have several shareholders. 

However, you must exercise caution when dealing with VCs. Relinquishing too much of your company’s shares may eventually cause you to lose decision-making power over your company. Hence you may find yourself not able to have the final say in what happens in your ecommerce business. 

Furthermore, most venture capitalists invest based on their foresight for the company to upscale in the future. However, most of them expect constant high growth. In fact, many VC firms expect 10 to 15x returns on their investment which may be unrealistic in the short term.

Nevertheless, they’re a great funding alternative when a bank rejects your ecommerce business. In addition, they provide access to large sums of money for entrepreneurs. You can also leverage your partnership with renowned VCs to increase your popularity and gain media attention. The perks are numerous, but you also want to be careful of the cons.

Sales Underwriting – Shopify Capital

Sales underwriting is a provision that allows you to use analytics from your ecommerce marketplace to secure loans for your business. The most common examples of this option include Amazon, Paypal and Shopify capital. However, most of these alternative funding options are only available for ecommerce businesses operating within America. The exception is Shopify, which has extended the opportunity to the UK and Canada.

Reports indicate that nearly 30% of small businesses fail due to lack of cash, and traditional banks aren’t helping matters. So, online marketplaces like Shopify took matters into their own hands. Let’s look at Shopify Capital as a primary example. 

Shopify Capital is the company’s attempt at encouraging ecommerce businesses in the US, Canada and UK by providing finances to keep them from stalling. Of course, the primary eligibility criterion is that you sell on Shopify. That said, the lending program offers entrepreneurs two types of financing: Merchant Cash Advance and Business Loan.

However, only the Merchant Cash Advance Option is available to businesses outside the US. The main difference between the two financing options is in their repayment plans. For example, repayment for a MerchantCash Advance primarily depends on your sales. That’s because Shopify provides the loans to you in exchange for a percentage of your future sales. 

And, of course, they charge the repayment daily. Hence, it may take you more or less than a year to pay back, depending on how much you make daily. But on the other hand, the Shopify loan capital mandates you to pay back the debt within 12 months. That’s why the flexible merchant cash advance is preferable.

You can get any amount between 200GBP and 1,000,000 GBP for Shopify Capital. But the amount you’re eligible for will also depend on your sales history with Shopify.


Needless to say, this option comes with many pros as an alternative financing option for Shopify ecommerce businesses. It provides necessary funds to move the business with flexible, easy-to-repay rates. 

Then again, it’s the best ecommerce business financing option you can get with poor credit. Banks are more stringent with who they invest their money into. On the other hand, Shopify recognises you and has your sales history. So, they know your business capabilities regardless of your credit score. Hence, they’ll be more willing to give you the loan if you have a good track with them.

The Downside

However, there’s a slight inconvenience with this funding alternative for ecommerce businesses. The interest rate can be quite expensive compared to other financing options. But since you probably won’t take long to pay back, you’ll only endure it for a bit. Then again, you don’t know how much Shopify will take off your account each time. Hence the repayment can be somewhat confusing and disruptive.

Clearbanc also has a lending strategy that’s similar to Shopify capital. They automatically generate credit based on your sales history on their marketplace. So you don’t get to negotiate how much funding you can get from them. It all depends on your previous sales performance with them. In addition, they also provide flexible repayment options and a one-time fixed transaction fee.


You can also put your marketing skills to work and get the community to fund you if the bank won’t give you an ecommerce business loan. Crowdfunding is precisely what it sounds like – sourcing finances from many individuals for your venture. In most cases, each of the contributors donates small sums. However, since they’re many, their contributions often total into sufficient capital.

The crowdfunding model typically draws financing from communities in which you have built positive reputations. Hence, depending on how well you present yourself, you can get private ecommerce investment from friends, family, loyal customers and even random web surfers. 

You can raise crowdfunding communities via social media or websites like GoFundMe, Indiegogo, and Kickstarter. Needless to say, your proposal will do the trick here. The better you can present your case, the higher your chances of securing the funds you need. 

The biggest advantage of this ecommerce business alternative funding option is that the receivers won’t have to pay back. Instead, you can consider the funds as a donation to push your ventures. So, you’re essentially getting free capital. 

However, the said advantage also makes securing funding from this avenue challenging. That’s because people aren’t always eager to donate to ventures that won’t bring them personal returns. 

Then again, it’s not a funding model you can always rely on. In most cases, you can only use it once or twice as you don’t want to financially wear out your biggest fans. Hence, you may want to save it for the right time. 

In addition, there are restrictions on who can contribute to your crowdfunding effort and how much they can give. These regulations help to protect non-wealthy individuals from giving more than their financial capacity. 

Important Considerations

That said, two major discouraging situations can arise with this funding alternative for ecommerce businesses, and they both pertain to your reputation. The first involves a situation where your attempt at crowdfunding your business fails. In that case, you would have wasted time, effort, and money, and it may also backfire on your venture’s credibility.

The second involves a situation where you have a successful crowdfunding effort, but the ecommerce business still tanked after the investment. This scenario is worse for your reputation for obvious reasons. Nobody will want to reinvest in a venture when their previous investment didn’t yield satisfactory results.

Nonetheless, this is an excellent funding alternative when the bank rejects your ecommerce business. And you can easily leverage your crowd-pulling ability to get the funds you need. Even if you don’t have such skills, you can hire someone who can help you with it.

Pre Order

This option is perfect if you need finances to purchase stocks. It allows you to leverage your loyal following to keep your business from stalling. Using a pre-order strategy, you can secure funds for goods and get them directly from your supplier to your customers.

The pre-order strategy is relatively straightforward and works perfectly for ecommerce businesses that can’t secure private investments. You’ll first display products on your online store before purchasing the actual inventory.

Then you’ll wait for customers to order the items. Finally, you’ll use the money they pay for the commodity to get the goods from your suppliers. And the best part is, if your supplier is credible enough, you can ship the products directly to the buyer from your them.

So, this alternative funding model for ecommerce businesses can save you logistics and warehousing costs as the goods don’t need to get to you before going to the buyer. Interestingly, many ecommerce businesses primarily operate using this model. No doubt, it’s a convenient operational model because it also removes the need for upfront costs and the burden of handling inventory storage.

However, it also has its discouraging factors. For example, it reduces the purchasing discount you can get from suppliers. Typically, when you buy upfront, you’ll purchase in bulk, qualifying you for higher discounts. However, this model forces you to buy individual units for each buyer; hence you don’t get as much cumulative discount.

Then again, you may not get to inspect and confirm the goods before they go to your buyers. And in the worst-case scenarios, the supplier may send damaged goods or something different to your buyers. 

Fortunately, most marketplaces make it easy for sellers to use a pre-order strategy. For example, Shopify has a Pre-Order manager feature which helps you manage and organise your pre-order options. This includes developing the design and managing the pre-order volume.

Find Funding for Your Ecommerce Business

Not being able to get funding from the bank for your venture should not be why you’ll let your ecommerce business stall. There are many viable funding alternatives you can get for your ecommerce business if you know where and how to look for them. 

Some alternative options are even better for your ecommerce business than financing from the banks. However, don’t expect them to just show up on your doorstep. The ideas discussed above should point in the right direction as you hunt for funds.

Alternatively, you can talk to Axis Shift. Ours is an investment outfit focused on revitalising struggling ecommerce businesses in the UK. Call 020 805 05795 to learn more.

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