Funding an online seller: what is actually available
Online businesses are difficult to lend to conventionally and easy to fund on revenue, which is why the market has moved so decisively in one direction. There is no property to charge, stock may sit with a third-party fulfilment provider or a supplier overseas, and a fast-growing store often shows losses while it reinvests in inventory and acquisition. A bank reading those accounts sees risk. A funder reading the processor data sees a predictable daily flow.
The options in practice are a secured or unsecured business loan over a fixed term; a revolving credit facility, which lets you draw, repay and redraw against a limit and is well suited to repeat stock buying if you can qualify for one; invoice finance where you sell wholesale to other businesses on credit terms; trade or import finance where you buy containers from overseas suppliers; platform-integrated funding offered directly by the payment processors and marketplaces you already use; and a merchant cash advance arranged independently against the same revenue.
Ecommerce business funding decisions usually come down to two questions: how quickly the money converts back into revenue, and whether the business can carry a fixed monthly commitment through a slow month. Answer those honestly and the right product tends to select itself.
Buying future online card revenue
A merchant cash advance is a purchase of future card receivables that gives an online seller a lump sum now in exchange for an agreed percentage of its card revenue until a fixed total has been delivered. It is not a loan, so there is no interest rate, no APR, no fixed term and no monthly instalment.
The cost is a factor rate, typically between 1.1 and 1.5, applied to the amount advanced: £50,000 at 1.2 means £60,000 repayable in total, however long delivery takes. The pace is a holdback, typically 5 to 20 percent of settled card revenue. Advances typically run from £5,000 to £500,000 and are sized close to one month of card turnover, which for a growing store with strong monthly revenue can be a substantial sum arranged in days. Our guide to how a merchant cash advance works walks through the mechanics.
The structural point for online sellers is that repayment tracks revenue. A month where paid acquisition underperforms costs less in cash terms than a month where it flies, which matters in a channel where results move faster than they do on a high street.
How Stripe, PayPal and Shopify settlements are read
The most common misconception among online sellers is that a merchant cash advance requires a card machine. It does not. What a funder needs is card revenue settling through a merchant account, and it makes no difference whether that payment was tapped on a terminal in a shop or taken through a checkout at two in the morning.
Settlement reports from Stripe, PayPal, Shopify Payments, Worldpay, Adyen, Klarna and the other processors are read the same way a funder reads statements from a physical acquirer: average monthly volume, transaction frequency, consistency across the period and direction of travel. Where a store uses more than one processor, and most do, the funder wants all of them, because the picture is only complete when the whole of the checkout is visible.
Two adjustments are specific to online trade. Refunds and returns are netted off, so a category with a high return rate such as fashion will be sized on net settled revenue rather than on gross sales, and the gap between the two can be considerable. Chargebacks are looked at closely as well, both for their level and their trend, because a rising chargeback rate is read as a sign of delivery or quality problems ahead. Indicative eligibility is around three months or more of processing history and roughly £2,500 or more in monthly card revenue.
Collection when there is no card terminal
With a physical merchant, the holdback is often taken as a split at the acquirer: the funder's share is deducted from each day's settlement before the balance reaches the business. Online, three arrangements are common, and the difference matters more than most sellers expect.
A processor-level split works the same way as the acquirer split, with the funder's share deducted from settlements at Stripe, Shopify or wherever your checkout settles. A daily or weekly direct debit takes an agreed percentage from the business account, reconciled against your revenue reports. A fixed daily debit takes a set amount and reconciles periodically, which is simpler to administer but less forgiving, because a fixed daily figure is not proportional and behaves more like a loan repayment during a slow week.
Ask which structure you are being offered and read what happens if you change processor mid-agreement, add a new checkout provider or move platform. Those are ordinary events for a growing store and unremarkable in themselves, but under some contracts they trigger consequences that a seller has not anticipated.
Stock, advertising and the cash conversion cycle
Online retail runs on a punishing cash cycle. Inventory is paid for upfront, often to overseas suppliers demanding deposits, then shipped, then held, then sold, and the money arrives weeks or months after it left. Paid acquisition compounds it: ad spend goes out daily while the revenue it generates settles later, so growth consumes cash rather than producing it.
That is the specific problem an advance is used to solve. It funds a stock buy ahead of a season, a container that would otherwise wait for the supplier's deposit terms, a step up in advertising while return on ad spend is proven and holding, or a bulk purchase at a discount that pays for itself in margin. In each case the money converts back into settled revenue quickly enough to make short-dated funding sensible.
Where the cycle is longer, the product fits less well. Building your own manufacturing, a full platform rebuild or a two-year brand play does not return cash inside the delivery period of an advance, and forcing it to only creates pressure. Working capital funding of this kind wants a short, provable route back to revenue.
Marketplace sellers and platform payouts
Sellers trading mainly through Amazon, eBay or Etsy sit slightly differently, because the marketplace collects the customer's card payment and then pays you out on its own schedule after fees. What a funder assesses is that payout stream, and marketplace statements are usually accepted alongside or instead of processor reports.
The complication is reserves and holds. Marketplaces retain funds against returns and disputes, delay payouts on new accounts and can suspend a listing or an entire account with little notice. That account risk is real, it sits outside your control, and funders price it in. A seller concentrated on a single marketplace will generally be offered less than one with the same revenue split across its own site and two or three channels.
Where a store sells through its own checkout as well as marketplaces, present both. Diversified revenue reads better, and the total volume available to underwrite is larger. Sellers who also run a physical shop should look at the retail funding page, since takings from both channels can usually be assessed together.
Business loan, revolving facility or advance
A business loan is generally the cheapest option in absolute terms where a seller qualifies. Interest over a fixed term costs less than a factor rate applied to short-dated money, and if you have filed accounts, a clean credit file and time to go through a proper process, that is the sensible first stop. A revolving credit facility is a better shape still for repeat stock buying, because you draw what you need, repay when the stock sells and redraw for the next order, paying only for what is drawn. The obstacle with both is qualification: young, fast-growing, asset-light online businesses are exactly the profile banks decline.
An advance trades cost for access, speed and flexibility. It is underwritten on processor data rather than on accounts or security, decided in days, requires no charge over assets, and flexes with revenue rather than demanding a set figure monthly. Platform-integrated funding from the payment processors and marketplaces themselves works on the same principle and is often quick and convenient, though the pricing is typically presented on a take-it-or-leave-it basis with little scope to negotiate.
Compare on one measure only: total cash repayable and the period over which it is expected to be repaid. Placing a factor rate next to an annual interest rate compares two different units and produces a misleading answer every time.
Where invoice finance fits for online sellers
Invoice finance advances money against unpaid invoices, so it needs business customers on credit terms. A pure direct-to-consumer store has none, and the product simply does not apply. That said, a great many online businesses grow a second, business-facing side, and that is where it becomes relevant.
If you supply independent retailers, sell wholesale into chains, fulfil trade orders or supply other brands, those invoices can be funded while your consumer revenue funds itself through an advance. The two coexist comfortably because they are secured against different income streams, and using each where it belongs is usually cheaper than stretching one across both.
Trade and import finance deserves a mention for the same reason. Where the constraint is paying an overseas supplier before goods ship, a facility designed for that purpose can be a better fit than raising general working capital, particularly on large container orders. We will point you towards it where it applies.
When an advance is wrong for an online business
The first test is margin. A store operating on thin margins in a competitive category may find that a holdback in the upper part of the range takes more out of daily cash than the products generate, which turns a growth tool into a squeeze. High revenue does not mean high margin, and funders sizing on revenue alone will not always make that distinction for you.
The second is returns. Categories where a large share of orders come back need to plan around net revenue, not gross, since the holdback applies to settlement while refunds go out separately. The third is dependence on a single marketplace account that could be suspended, because the revenue securing the advance can stop overnight through no fault of your own.
Then the general limits. An advance will not rescue a store losing money on every order, since scaling a loss faster is not a strategy. It cannot fund a launch with no processing history. It is the wrong shape for long-dated projects. And stacking a second advance on top of a running one puts two holdbacks against the same settlement, which is the most common route to genuine distress with this product.
Not a loan: the regulatory position
Because the funder is buying future card receivables rather than lending, an agreement with a limited company sits outside the Financial Conduct Authority's consumer credit perimeter and is unregulated commercial contracting between two businesses. No APR is disclosed, no consumer cooling-off period applies, and the contract does the work.
For online sellers, three clauses deserve particular attention: how card revenue is defined and whether it is gross or net of refunds and processor fees, what happens if you change or add a payment processor during the agreement, and whether the funder can vary the holdback. Also check for a personal guarantee, which is common even though no security is taken over assets. Sole traders should ask whether their agreement falls within the Consumer Credit Act, as some agreements with unincorporated businesses do, which changes the protections available. Our eligibility page covers the boundary in more detail.
How we arrange funding for online retailers
We arrange and place with funders rather than lending, and the funder pays us. For an online seller the useful part is knowing which funders read multi-processor revenue properly, which are comfortable with marketplace concentration, which will work with three months of data rather than six, and which price a fast growth curve as opportunity rather than as risk.
Send three to six months of processor and marketplace statements plus recent bank statements, tell us what the money is buying and how quickly it turns back into revenue, and we will come back with the offers worth considering, compared on total repayable and holdback together rather than on the headline figure. Where a revolving facility, trade finance or invoice finance is the better structure, we will say so. Smaller stores should also look at our small business cash advance page for sizing at the lower end.