Debt Financing Checklist for E-Commerce Founders

Scaling your e-commerce business as a marketing founder is an exciting challenge, and looking for external funding sources may be part of your strategic financial planning. 

With this in mind, debt financing can be an effective way to fuel growth, providing the capital needed to amplify your marketing efforts, drive sales, and expand your reach. 

Here’s a tailored checklist to guide you through the process, ensuring you make informed decisions that align with your growth strategy.

Understand Your Financial Needs and Goals

In order to make an informed decision about whether debt financing is right for you, you need to understand your financial needs, research your options, and ask the right questions. By doing so you can find a debt solution that aligns with your business goals. 

Some things to consider before starting to research your options include:

➡️ Assess your current financial position 

Evaluate your current revenue, expenses, cash flow, and profitability, along with marketing ROI and customer acquisition costs. A comprehensive assessment of your current financial position ensures you can make informed strategic decisions, including having a plan for sustainable growth alongside the ability to manage repayments. 

It will also prepare you for the questions lenders will ask and prioritise the use of debt in the most strategic way.

➡️ Define your scaling objectives

Determine how much capital you need and what you’ll use it for, whether that be marketing campaigns, technology upgrades, inventory or new market expansions.

Some key reasons why e-commerce businesses choose debt financing include:

• Accelerated growth: As e-commerce businesses scale their operations, they may choose to secure additional funding to support marketing and sales efforts, invest in technology and infrastructure, and expand their customer base. A revolving credit facility such as Juice allows businesses to drive growth and capitalise on market opportunities.
• Prepare for peak seasons: Increasing inventory levels to accommodate peak seasons such as holidays or promotional events is key to e-commerce businesses meeting demands during these periods. Access to a debt facility enables businesses to access working capital to purchase additional inventory, to maximise on the opportunities peak seasons bring.
• Launch a new product line: New product lines are an exciting addition to an e-commerce business strategy, and access to a debt facility can support product development costs, manufacturing, marketing and distribution. 
  

➡️ Project future financial performance

Create realistic financial projections to understand how debt financing will impact your marketing initiatives and overall business growth. Lenders will want to see that you have a solid understanding of your revenue, expenses, and cash flow, alongside a well-prepared business plan that outlines your growth strategies and how you intend to use the funds.

Understand debt financing over other financing options

Debt financing provides e-commerce businesses with access to the capital they need to scale their efforts, while allowing them to retain ownership and control of their business. Debt financing can come in many forms such as small business loans, credit lines, or credit cards for example. 

Businesses typically use this type of borrowed money to fund their working capital. For e-commerce businesses debt financing can be an ideal option to support seasonal marketing expenses or unexpected opportunities. Check out our blog on The Role of Debt Financing in E-Commerce Growth Strategies for practical steps for incorporating debt financing into your business plan.

As a result of taking on debt, businesses make the promise to repay the loan and incur the cost of interest. This is why it is important early on to consider your growth strategies and financial projections. 

Research potential lenders

Once you’ve navigated the initial hurdles of assessing what capital you need and why, and you’ve compared different financing options, you can look to identify potential lenders. 

Not all lenders are the same, and you want to partner with someone who understands e-commerce and can support you on your journey. Alternative lenders to traditional banks often offer a more convenient and user-friendly solution, utilising technology to enhance efficiency and accessibility. 

Some key items to consider when comparing debt providers includes:

• Reputation and credibility: Look for lenders known for working with e-commerce and marketing businesses. Check reviews and testimonials.
• Experience with e-commerce and marketing: Look for lenders who understand unique needs of marketing-driven e-commerce businesses.
• Transparency: Ensure the lender provides clear information on terms, fees, and conditions.
• Support: Look for lenders who go beyond providing a funding solution, and can help you maximise your potential with your loan. Look for a lender who views the relationship as a partnership.

Evaluate loan terms and conditions

Once you’ve found a lender who can support you on your growth mission, start to evaluate specifics around the lending terms. Some important considerations include:

• Interest rates and fees: Compare interest rates, origination fees, and any other hidden costs. Factor these costs into the overall expense of debt financing, and include them in your financial projections to ensure sustainability.
• Repayment terms: Understand the repayment schedule, duration of the loan, and flexibility of access in case of cash flow fluctuations. Compare against your growth strategy to ensure cashflow needs are aligned.
• Collateral requirements: Know what assets, if any, are required as collateral.
• Default risks: Understand processes and risks associated with defaulting on your payments. Failing to meet repayment obligations could lead to damaged credit. 
  
  

Ask the right questions

Establishing a strong relationship with your lender can be beneficial to support your business with its growth strategy. Relationship building can start prior to lending commencement, and even before you’re in a position to need debt financing! Check out Juice’s Growth Hub for more information on how we support founders and their teams succeed throughout their whole journey! 

One way to start building relationships is through networking events, and asking the right questions. Consider the following as part of your planning and relationship building: 

• What is the total cost of the loan over its lifetime

• How will this loan impact my marketing budget and cash flow?

• Are there any prepayment penalties or flexibility in repayment terms?
• What are the lender’s requirements for financial reporting and performance monitoring?
• What support or resources does the lender provide to borrowers?

At Juice we are much more than a funding partner. We actively support you with growth, giving you access to the tools and data to help you succeed. Check out our Insights product and how this can support you, no matter what stage you’re at! 

Conclusion

E-commerce businesses often need to explore alternative financing options to fuel their growth, and taking on debt to scale your e-commerce business can be a powerful move when done strategically. By understanding your financial needs, researching your options, and asking the right questions, you can find a debt solution that aligns with your business goals. This proactive approach will empower you to make informed decisions and confidently navigate the path to growth.

At Juice we nourish your business, providing financial support and insights to enable you to focus on what matters most - nurturing a business to profitability. Ready for a fresh approach? Get Juice!