5 Ways to Fund a Growing Ecommerce Business: Options to Finance Your Inventory

Having worked with hundreds of companies over the last few years, I’ve learned that almost every company hits a snag in their growth at a certain point.

The story normally goes something like this:

  1. They have an issue with the way a product works and thinks they can build a better mousetrap.
  2. They promote this idea to a few people and it gains some traction.
  3. Maybe they launched a crowdfunding campaign for the initial production run.
  4. Before they know it, their product is taking off.  They add some variety – new colors or a larger and smaller version – and now they’re looking at producing ten times the amount of inventory than what they started with.

While this is a great problem to have, it can also induce some anxiety. This is more inventory than they’ve ever produced. The deposit to the factory is going to be massive.

Between production and shipping lead times, it will be months before they can start shipping to customers. If they find a way through this cash flow gap, they can keep realizing great growth in their business. If they can’t, it will be a major anchor, leading to problems with inventory accounting.

Sound familiar?  Fortunately, this is a well-known problem and there are plenty of people who can help you through this exciting period.

How to finance inventory for an ecommerce store

Let’s review five of the most common options that work well for many other businesses when it comes to funding.

1. Equity finance

Simply put, you can sell a portion of your business for a cash infusion, and that cash can be used to fund your ongoing operations and inventory production. There are many different providers, and you can often find a likely investor by looking up who invested in companies similar to yours.

Pros – Investors can be strategic and add value to your business. The investor is along for the ride.  If your business fails, so does their investment.  They have a strong interest in helping you succeed.

Cons – Valuations are typically pretty low for consumer product good companies. Thus, you may end up forking over a significant portion of your business to secure the funds you need.  As it’s a one-time financing, you will need to sell a piece of your company every time you use this method.  It is normal for it to take 90 days or more to put a deal together.

Providers include CircleUp (crowdfunding), 500Startups (accelerator), and many others.

2. WIP finance

This is a financier that will take a risker position to fund the production of inventory. This is very similar to AR factoring and often requires the same guarantees.

Pros – It can be a fast process. WIP firms are familiar with the time constraints around a purchase order.  Typically, once you establish a relationship, you can continue to fund inventory with them.

Cons – They are generally more expensive, as they are assuming more risk than most other options. They also require pretty strict warrants from the business owner, like personal guarantees or liens against all other business assets.  They are not invested in the growth of your company, so they don’t care if they have to sink you to get their money back.

Providers include Leland Capital Advisors, wip-funding.com, and others.

3. AR factoring

An AR factoring firm will buy your receivable from you at a discount. This means once you have delivered the inventory, instead of waiting 60 days to get paid, you can get paid a portion of the PO from an AR factor immediately.  Then, they collect from the PO issuer when the payment term has elapsed.

Pros – It is based on the credit of the PO issuer, as the inventory has already been delivered. It is typically a bit cheaper than WIP Financing because some of the risk has been removed.  They are also pretty fast once they have verified the details of the financing deal.

Cons – AR factoring firms have to qualify every new PO issuer you work with, and they can change rates or refuse to serve certain PO issuers. These generally require the same strict warrants that WIP financing require.  Similarly, they are not invested in the performance of your business and will come after you to make themselves whole.  Finally, there is a risk for you if your PO issuer does not end up paying them.  Many factoring agreements include a clause that would make your business liable if the PO issuer does not pay.  Some agreements will include punitive clauses where you have to pay if the PO issuer pays late.  It is also worth noting that AR factoring is not available if you don’t have purchase orders.

There are many providers. Here is a list of 30 companies.

4. Merchant cash advance

This is not a loan, but rather a purchase of your future revenue at a discount. Essentially a new take on AR factoring, this funding method will buy a portion of your future revenue, even if you do not have a receivable on hand.  This can be used to fund the production of inventory.

Pros – A merchant cash advance is very fast.  Many providers promise funds within 48 hours.  It is based on your revenue track record and includes little other qualification, so the process is much easier than most other options.  It also typically does not require a lien on your business.

Cons – It is very expensive. They can’t structure these as loans because they would be liable for usury at the rates they charge.  According to Kabbage, businesses can pay over 100% APR for MCA loans.  They will also go after all of your assets to make themselves whole, and most will require personal guarantees.  These can impact your personal credit and make it difficult to qualify for other life purchases.

Providers include Kabbage, OnDeck, and plenty of others.

5. Inventory crowdfunding

The latest innovation in funding inventory is crowdfunding your inventory. Inventory crowdfunding lets anyone pay for your inventory, which is then put on a consignment agreement.  As your inventory sells, you pay the investors back.

Pros – This option is reputation-based. As you continue to build a relationship with the community, you can expect to see your costs come down.  Since there is an incentive to fund companies, these consignments don’t require the amount of marketing and attention you may expect with crowdfunding.  You can make this opportunity available to your supporters and pay them instead of a monolithic financial institution. It is also unique, in that you can leverage existing financing costs to build brand affinity with your customers.  Inventory crowdfunding can scale alongside your business needs and is the most flexible solution overall.

Cons – It can take about a week to receive funds after a successful co-op. Depending on the business, it can require strict warrants like a personal guarantee.  You are also required to complete one consignment before you can run multiple concurrent consignments.

Kickfurther is the only provider currently.


There are many options to consider when raising cash for your growing ecommerce business.  There is not always a one-size-fits-all solution.  If you need help raising cash for your next round of inventory but don’t want to deal with banks and other expensive partners, learn how inventory crowdfunding can work for you. Check out Kickfurther today.

Learn more

If you’re looking for other partners to assist you in your ecommerce business, such as order fulfillment, check out ShipBob. Whether you want to offer affordable 2-day shipping or simply outsource ecommerce fulfillment, learn how ShipBob can help.

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