Debt Financing vs. Equity Financing for eCommerce

Debt Financing vs. Equity Financing for eCommerce

When your eCommerce business needs financing, you generally have two options: debt financing or equity financing. So how do they differ, and which one is right for your unique business? 

As this post demonstrates, there are pros and cons to each—but they aren’t your only options. eCommerce-specific financing offers businesses faster and more flexible cash flow solutions. We break it all down in this post so you can make the right decision for your small business financing needs

Debt Financing for Your eCommerce Business

“Debt financing” refers to the process of borrowing money that you repay with interest over a certain period, which we recognize as a traditional loan. The most common forms of this type of financing for businesses include bank loans, SBA loans, online business loans, and business credit cards. 

  • Bank loans: Traditional banks offer business loans to large, established businesses. Loan amounts vary but can be as high as $1 million or more. Interest rates tend to be low, and payment terms generally include fixed monthly loan payments. Approval rates are low for small, online, and eCommerce businesses. The application process will be heavily weighted on profitability, personal/business credit, written business plans, and can take months to be approved.
  • SBA loans: SBA loans are bank loans guaranteed by the Small Business Administration (SBA). Loan terms for their 7(a) term loan program go up to $5 million over 7-25 years. If approved and funded, the SBA will guarantee up to 85% of your loan. For any loans over $350k, the SBA will require collateral. The application process will vary based on the size of the loan, uncollateralized SBA loans can be. Similar to traditional bank loans, SBA lenders will require specific profitability, personal/business credit, outstanding debt, and collateral when needed. 
  • Online business loans: Online business lenders offer small-dollar loans (typically $5,000 – $250,000) with high approval rates, fast application processes, and quick funding. They generally have higher interest rates than banks and often require daily payments. These loans will be most beneficial to owners who can see a worthy return relative to the cost. 
  • Business credit cards: Technically not a loan, credit cards are another common form of debt financing. Business owners often use a business line of credit to fund start-up costs and early-stage growth, but credit limits only go so far. Plus, credit cards can be costly if you don’t pay your balance in full or by the payment date each month. 

The bottom line:

There are pros and cons to each form of debt financing, as outlined above. The most important question to ask before getting debt financing is how likely you’ll be able to make your repayment obligations. This requires you to have a solid understanding of your business finances and overall financial stability. 

Equity Financing for Your eCommerce Business

“Equity financing” refers to the process of raising money by essentially selling part of your ownership stake to an equity investor. The most common types of equity financing for eCommerce businesses include angel investors, venture capital, and small business investment companies (SBICs). 

  • Angel investment: In general, angel investors are individuals that offer seed funding to help you launch your business. They typically use their own money to help you get your business off the ground. In some cases, an angel investor could be a friend, family member, or someone with professional investing credentials.
  • Venture capital: Venture capitalists (or VCs) typically invest in start-ups and small businesses with high-growth potential with the hopes of an acquisition or to steer the company towards going public.
  • Small business investment companies (SBICs): An SBIC is a privately owned investment company licensed and regulated by the SBA. Investments normally range from $100,000 to $5 million. 

What are the pros and cons of equity financing?

Equity financing pros: 

  • Limited liability: Equity investors assume the risk when they choose to invest, which means your business assumes less liability. 
  • Less reliance on credit: Unlike traditional financial institutions, equity investors typically don’t rely on credit scores when making their decisions, so you can get equity funding even if you have bad or no credit.
  • No payment obligations: You’ll have better control over your cash flow since you won’t be on the hook for daily or monthly payments.
  • Expert guidance: Most equity investors provide business guidance and advice to help your business succeed.

Equity financing cons:

  • Less control & ownership: Because of the way equity financing works, you have to give equity investors partial ownership of your company. This means they’ll have a say in your business operations and management decisions. 
  • Time-consuming process: In many cases, getting equity financing is a time-consuming process that will require you to compile financial documentation, create and give an investor presentation, wait through due diligence processes, and more.
  • Must share profits: Because equity investors have partial ownership of your company, they will get a portion of your earnings. 

The bottom line:

Equity financing can be an excellent option for high-growth online sellers. But as with all business decisions, it’s important to think carefully before signing any agreements. It’s essential to decide how willing you are to give up control and ownership of your company and exactly how much power your investors will have. Each type of business will have different short-term and long-term goals.

eCommerce-Specific Financing Options

Debt and equity financing aren’t your only business funding options. For years, eCommerce financing solutions have given sellers flexible access to cash. These include marketplace funding options, payment processing financing, and Payability.

Marketplace funding options

If you sell on Amazon or Shopify, you might qualify for their respective loan programs, Amazon Lending or Shopify Capital. You cannot apply for either option directly, but if you meet the minimum qualifications, you’ll get an offer in your account that you’ll then need to apply for. If approved and funded, the company will deduct your payment from your platform payouts.

Payment processing financing

If you sell on your own website and use a payment processing company like Stripe or Square, you could qualify for their respective financing programs, Stripe Capital or Square Capital. Similar to Amazon Lending and Shopify Capital, both Stripe Capital and Square Capital are invite-only and rely on your account health. If approved and funded, your repayments will come from a fixed percentage of your daily sales. 


Payability is a financing company designed explicitly for eCommerce sellers on Amazon, Walmart, Shopify, eBay, Newegg, and more. They offer two solutions — Instant Access for daily payouts and Instant Advance for large cash advances. 

  • Instant Access from Payability: Get paid the next day, every day with Instant Access. If you have $5,000 in your account on Monday, you’ll get 80% of it on Tuesday—that’s $4,000 from the previous day’s sales that you can reinvest in inventory, marketing, or other growth initiatives. Payability keeps the remaining 20% on hold in case of returns or chargebacks, but it will appear in your next regularly scheduled payout. 
  • Instant Advance from Payability: If you need a large infusion of capital, use Instant Advance to get up to $250,000 in as fast as 24 hours and without a single credit check. How much you qualify for depends on your sales history; typically, you’ll get 75% – 150% of one month in marketplace sales revenue.

Final Thoughts on Financing Your eCommerce Business

In the end, getting financing is a smart way to reinvest in your business. There are several options available; you simply have to think about what you’re most comfortable doing.

Are you okay with giving up control and ownership of your company? Can your business handle the liability associated with debt? Or do you want a flexible solution that helps you maximize your cash flow and working capital? 

If you’re like most eCommerce sellers who want that added flexibility, get started today with Payability

Victoria Sullivan
Victoria Sullivan is a Marketing Manager at Payability. She has over eight years of social media, copywriting and marketing experience. Prior to joining the Payability team, Victoria developed social media content and strategies for top technology brands such as Skype and Samsung. She holds a degree in Advertising from Syracuse University’s S.I. Newhouse School of Public Communications. She can often be found in a yoga class or working on her fashion blog.

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