While this may be simply-stated, we're not oblivious to the fact that such a task can be a true undertaking. There are plenty of financial options out there to consider, but the true challenge is finding the one that will be most beneficial for your business.
In this article, we'll discuss a few of the most common financing options, so you can get a better idea of what's available and what might work best for your D2C brand. Read on to learn more.
Importance of the Right Growth Capital from the Right Financial Partner
As you begin searching for and comparing inventory financing solutions for your eCommerce brand, there are a few points you'll want to consider. Here are three items to keep in mind as you select the best option for you:
1. Expert advice on managing cash flow. Some financial partners don't offer this type of guidance—rather, they offer a purely transactional relationship, with little to no guidance or advice. Some financial partners will solely offer capital without any additional services, either because of the way their business model is structured or because their business does not generate sufficient revenue to provide additional resources beyond the capital provided.
Even if you believe you can do without the extra financial services, it may end up benefiting your business to have a financial partner you can turn to for advice on maximizing your revenues and margins, as well as providing inventory loans for growth.
2. As a new, high-growth brand with a limited history, you can expect to pay a higher cost for capital than more established companies (generally from newer financial companies that operate on a revenue share model). Effective cost of capital could be costing you substantial dollars, ultimately impacting your margins, valuation, and your ability to scale your business profitably.
3. The ability to borrow funds for inventory and generate revenue in the short-term is paramount. In doing so, you can unlock the necessary cash for other working capital expenses, such as marketing efforts, ads, salaries, and more, which will help promote brand awareness and allow you to expand.
Types of Financial Partners Available to Your D2C Brand
1. Banks
Though a bank loan might seem like the most straightforward route to securing funds, a bank's business line of credit is typically on the low side—especially for new businesses that have only a few years of financials. Typically ranging from $1,000 to $250,000, it's likely that a business line of credit from the bank won't supply the growth capital you need if you are growing your business substantially month to month. Banks can also be quite slow to replenish funds at the end of a fiscal year—it would not be uncommon to receive additional capital toward the middle or end of the following year.

Pros vs. Cons
There are a few advantages of using a business line of credit. For one, they are fairly flexible, allowing you to pay only for what you actually use. It also may be convenient for you that a loan from a bank is tied to other products and services, such as credit cards, bank account, savings, and more, which will serve to keep your finances more streamlined. You'll also be able to build business credit and develop your credit history, which will speak to your reputability for future loans.
Equally important to consider are the disadvantages of a bank loan. Specifically, banks offer less money upfront due to a lack of understanding of eCommerce business models. The challenge for high-growth eCommerce businesses is balancing cash flow for their Direct-to-Consumer and wholesale needs. Specifically, high-growth eCommerce brands often need to fund substantial purchase orders placed by large retailers or other subscription box services, and often, payment from these orders isn't received for months. The inability to process these orders due to a lack of initial funds can result in missed revenue opportunities, hence slower growth from year to year.
Banks also present the problem of higher currency exchange rates for international business, which is unavoidable in the world of eCommerce. In fact, it's likely that a good deal of your business may be conducted with overseas entities—whether it be for your products themselves or your packaging costs—so higher currency exchange rates can end up significantly hurting your profits, and may even impact your ability to qualify for more affordable capital elsewhere.
2. Merchant Cash Advance Products
Also known as revenue-sharing financing, merchant cash advances are not the same as using a revolving business line of credit. Rather, this process basically entails receiving funds from a financing company in exchange for a cut of your future sales, including a fee.
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Pros vs. Cons
The primary benefit of a merchant cash advance (MCA) is that it's fast—you can have the funds you need (typically up to $500,000) in as little as one day. It's also easy to qualify for, even without excellent credit. Repayment is flexible, and depends upon the amount of sales you make during a given period.
Unfortunately, merchant cash advances come with higher fees than most loan options, ranging from 6-20% of the amount borrowed. The more sales you make, the quicker you have to pay back what you've borrowed, which dramatically increases your effective cost of capital. If you have a particularly slow month, be prepared for your MCA provider to take the majority of your profits. There is also little regulation for this method of lending due to the fact that a merchant cash advance is not actually a business loan. Between the high fees and minimal regulation, it may be easy to fall into a cycle of debt.
3. Royalty Financing
Another popular option to consider for your business is royalty financing, which involves receiving funds based on future revenue. The amount borrowed is then paid back as a percentage of your business's revenue. In some ways, this process may sound similar to a merchant cash advance, though the two differ because royalty financing is a loan.
Pros vs. Cons
Some positive aspects of royalty financing are that the process is fast, and you won't have to relinquish control to equity investors in exchange for capital. Unlike a merchant cash advance, dry spells don't equal debt—you'll owe nothing to a lender that you're not making in sales. On the flipside, keep in mind that royalty financing can still be expensive, and costs will only increase with the amount of profit your business brings in.
4. Venture Capital
Venture capital entails giving up a portion of your business's equity for cash. Some entity or corporation will typically finance your business if they believe it will be profitable. In return, they will own some part of your business, enjoying its success as it grows. It's also not uncommon for venture capitalists to take preferred stock in the company, or sit on the Board of Directors (for larger businesses).
Pros vs. Cons
The good thing about venture capital is that it's an opportunity to expand and scale your high-growth brand. Additionally, no repayment is necessary, and the entity or individual who took a chance on your business will be established and reputable. However, it's important to understand that handing over equity means having less control of your own business. While venture capital can be good for receiving strategic advice about expanding your business geographically, inventory financing is a short-term capital need, and giving up a certain percentage of your business for short-term capital is not the best decision for your business.
Should your opinion clash with the companies or individuals who own equity in your business, be prepared for conflict. You will also need to prepare and present a business plan to successfully convince venture capitalists to take a chance on you. Often, venture capital funding is a long, drawn-out process, and funding isn't a guarantee at the end of it.
5. Loop
Finally, there's Loop. Built to help high-growth brands scale and develop, the company has lent to thousands of Canadian businesses to date. Our Canadian-based inventory financing and financial services solution, Loop, understands that the more a business grows, the more access they will need to capital—and fast. For eCommerce brands especially, Loop enables access to a constant cash flow, so you can place inventory orders and keep up with consumer demand.

There are quite a few advantages to using Loop as an inventory financing solution and your financial services partner. For starters, your business will be able to take advantage of every order that comes your way without worrying about inventory costs. You'll have the cash you need to keep your business growing and thriving whether that’s with our active line of credit or with our purchase order financing solutions. In working with Loop, you'll also receive a financial expert and personal consultant to guide you through any questions that might pop up along the way.
Additional products that Loop offers include:
- Supplier Payments: a product that provides eCommerce brands hassle-free supplier payments at bank-beating FX rates;
- Loop Account (Q1 2021 Launch): a multi-currency account offering USD & CAD accounts, so businesses can pay or get paid in the currency in which they do business;
- The Loop Card (Q1 2021 Launch): specifically built for eCommerce brands who don’t want to tie up their cash (or need to constantly transfer funds to manage low credit card limits).
Ultimately, Loop is a real financial partner that will take a genuine interest in your business, helping you scale to the extent that you desire. We’ll take care of your finances, so you can focus on running and scaling your eCommerce business. But don’t just take our word for it—see what our customers are saying!
Additional Factors to Consider
As you weigh and measure the inventory financing solutions we've explored in this article, it will behoove you to pinpoint the types of service(s) you prioritize most in a financial partner. Examples include costs and fees, repayment plans, additional products and services, expertise and professional guidance, or the type of white-glove service that Loop provides.
If you're most interested in a clear, simple lending solution for your eCommerce business, we encourage you to create your free Loop account today. You can also book a demo tour to find out whether Loop is right for you. We'd love nothing more than to help businesses like yours reach your growth goals as you scale your business!