The Ultimate Ecommerce Business Funding Guide

Joseph Cox
February 28, 2023
12 min read
March 7, 2024

The Ultimate Ecommerce Business Funding Guide


The importance of funding

This is our most important guide. Why? Because cash is king. It's the lifeblood of business. Mismanaging cash is the number one reason businesses fail. In comparison, a business with good cash management maximised its potential for growth.

Funding is there to make sure that when you need to, you have the cash to, for example:

  • Stock up on inventory
  • Boost your ad spend
  • Purchase new equipment, and so on
"Ecommerce businesses are unique because cashflow has an outsize impact on success. But they also have unique funding opportunities..."

When should you be thinking about funding?

There is no 'right' time to fund a business. But you do need to understand your goals and where funding will impact you in achieving these goals. In other words, the right time to think about funding is as soon as you know your business' goals. 

However, we would like to encourage you to understand your funding options early is beneficial because a) many helpful options are overlooked by business owners resulting in missed opportunities for cheap cash, and b) certain funding options require a bit of advance planning to access successfully.

What is in this guide?

This guide gives a broad overview of the sources of cash for an ecommerce business, details their pros and cons, and where we have been able to identify one, our chosen provider in that space.

Types of funding for ecommerce businesses

The sources of funding below are organised broadly in the chronological order in which a business owner might access this type of funding, starting with self-funding options through to external investment and strategic financing.

Owner equity

Owner equity refers to the amount of money that an owner invests in their own business. When you first open your business, you create a number of shares, which you allocate to yourself. You choose how much of your own cash to inject into the business by varying the initial value that you set for the shares of the business.

Share ownership has tax implications, and you should consult with an accountant, but for most, it makes sense at the outset to set a low share price, as there are more tax-efficient ways for you to fund your business.

Pros: the owner maintains full control over their business and can make decisions without having to consult with outside investors. Secondly, using owner equity means that the owner does not have to pay interest on any loans they may have taken out. Lastly, using owner equity can help to increase the value of the business as the owner's investment is seen as a vote of confidence in the business.

Cons: if the business fails, the owner stands to lose all of their investment. Additionally, using owner equity may not be enough to fully fund the business, so used in isolation, this may limit growth opportunities. Lastly, there is legal admin in creating the associated paperwork and making sure that the proper filings are made.

Director loans

Director loans are a way of financing your business where a director or shareholder lends money to the business. There are tax implications and we have written a detail post on Director Loan Accounts - How to use them properly.

Pros: director loans provide a quick and easy way to put cash into the business. In most cases, minimal paperwork is required, and you can access the cash instantaneously.

Cons: director loans can be risky because if the company is unable to repay the loan, the lender ends up losing their personal funds. 


We have to mention grants because it is an often overlooked source of free funding, granted (😉), there may be few grants available in your space. Grants are non-repayable funds given by organisations to businesses or individuals to support a specific project or purpose. Applying for grants requires a well-written proposal outlining the project or purpose of the business, how the funds will be used, and the potential impact of the project.

Pros: grants are not repayable. Additionally, receiving a grant can boost a business's credibility and reputation, and the granting body may well be able to promote the business and introduce useful connections or and partnerships.

Cons: grants can be highly competitive, and the application process can be time-consuming and complex. Businesses may need to invest significant resources in researching potential grants and crafting a strong proposal. Additionally, grants may have specific requirements or restrictions on how the funds can be used, which may limit a business's flexibility in pursuing its goals.


Crowdfunding is a popular method of raising funds for businesses. This approach involves obtaining funding from a large number of individuals via an online platform. You pitch your idea to the public and receive contributions in exchange for rewards or equity. There are several ways to fund your business with crowdfunding, including reward-based crowdfunding, equity crowdfunding, and donation-based crowdfunding. And the UK is the third biggest crowdfunding market in the world, after the US and China.

Pros: it allows businesses to access a wide pool of potential investors, making it easier to raise funds. Additionally, crowdfunding provides exposure to a broader audience, letting you showcase your product or service to potential customers and create advocates for your brand. It can often be a cheap source of funding compared to the equivalent deals you may be able to get from alternative external investors.

Cons: there is no guarantee that a crowdfunding campaign will be successful. There is also a risk of not meeting the funding goal, which can result in losing the funds raised. Additionally, crowdfunding requires significant time and effort to launch a successful campaign. You need to create a compelling pitch and develop a strong online presence to attract backers. And lastly, if your crowdfunding rewards backers with equity, then you are diluting your ownership of the company.

EIS and SEIS investment

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are government-backed initiatives designed to encourage investments in early-stage businesses. EIS and SEIS provide tax relief to individual investors who invest in new UK companies. These schemes can help you secure funding for your business while providing tax benefits to your investors.

Pros: the EIS and SEIS provide significant tax benefits to investors, making your business a more attractive investment opportunity. With SEIS, investors can claim income tax relief of up to 50% of the amount they invest, up to a maximum of £100,000. With EIS, investors can claim income tax relief of up to 30% of the amount they invest, up to a maximum of £1 million. In addition, both schemes offer capital gains tax relief on the disposal of shares after three years. These tax incentives can help you attract more investors to your business, making it easier to raise capital.

Cons: the EIS and SEIS have certain restrictions and criteria that your business needs to meet to qualify for the schemes. For example, your business must be a UK-based company, not listed on a stock exchange, and have fewer than 250 employees. Investors are required to hold their shares for a minimum of three years to be eligible for tax relief. These restrictions may limit your pool of potential investors, and the administrative costs associated with the schemes can be high.

Chosen provider: SeedLegals is an industry-leading legal-tech solution for startups and SMEs. The team are experts in funding and S/EIS - over half of all SEIS Advance Assurance applications go via SeedLegals, and 1 in 6 early-stage funding rounds in the UK are closed on SeedLegals.

Companies can dramatically cut down their costs and time spent on admin by using the self-serve platform, with friendly guidance available at no extra cost via live chat or call. 

Get in touch with SeedLegals

Angel, Seed, and Private Equity investment

Angel, Seed or Private Equity investors are individuals or businesses who typically invest in early-stage businesses. In exchange for their investment, they take an equity stake in the business. To access this kind of investment, you will typically speak to an investment broker, or seek out these investors directly.

Pros: it can provide a significant amount of capital to a business as well as a sophisticated and strategic partner with deep experience of businesses in your sector and stage of life for your business. They can provide valuable expertise, contacts and support to the business, helping it to grow and succeed. In addition, once you have secured this kind of funding, it can help attract other investors, as it signals to the market that the business has the potential to succeed.

Cons: firstly, it can be expensive. Angel and seed investors usually expect a high return on their investment and may require a significant equity stake in the business. They may also impose certain conditions on the business, such as the requirement to achieve certain milestones or to meet certain financial targets. In addition, securing this kind of funding can be time-consuming and may require a significant amount of effort, both in structuring the deal, finding investment partners, and pitching.

Bank loans

The process involves borrowing a specific amount of money from a bank and agreeing to repay it over an agreed period and interest rate. The loan can be either unsecured (in which case you'll pay a higher rate of interest), or secured against property or inventory.

Pros: One significant advantage of funding your business through bank loans is that you can access a large amount of money relatively quickly. Banks can lend more money than most other sources, which can enable you to make large investments in your business. Additionally, taking out a loan can help establish a credit history for your business, making it easier to obtain credit in the future. Furthermore, bank loans can offer lower interest rates than other forms of financing, making it a more affordable option.

Cons: loan applications can be time-consuming and require extensive documentation and financial statements. This process can be particularly challenging for new businesses or those with poor credit history. For secured loans, posting collateral to secure the loan is a drawback. If the business is unable to repay the loan, the bank can seize the collateral, resulting in a significant financial loss for the business.

Providers: lending is a crowded space, so here we strongly recommend taking the time to compare the market. We have partnered with Business Score to help you identify the most suitable lenders and also cut down the admin time required.

Compare lenders with Business Score

Line of credit, a.k.a. a business overdraft

A line of credit lets you access funds as needed, up to a predetermined credit limit. Instead of receiving a lump sum of money, e.g. with a loan, a line of credit provides ongoing access to funds on-demand to cover expenses as and when they arise.

Pros: One of the main advantages of a line of credit is its flexibility. Businesses can draw funds as needed, making it a good option for covering unexpected expenses or managing cash flow fluctuations. Additionally, businesses only pay interest on the amount of money they use, not on the entire credit limit. This means that if a business doesn't need to use the entire line of credit, they can save on interest charges. Lines of credit also have lower interest rates than credit cards, making them a more affordable financing option.

Cons: The main downside of funding your business using a line of credit is that it is usually a more expensive form of funding than other forms of borrowing. You get a greater flexibility in accessing cash but this comes at a higher cost.

Providers: providers of lines of credit are generally the same as providers of bank loans, so again, we recommend comparing the market for this type of funding.

Supplier invoice financing

Supplier invoice financing is a relatively new area of funding, where a provider agrees to pay your supplier invoices on your behalf. It may seem unintuitive at first that an institution would be willing to fund your business based on the costs your business incurs, but supplier invoices are a reliable enough indicator of a business' ability to repay the financing, that this is now a viable and often highly suitable source of funding for ecommerce businesses.

Pros: it serves a specific purpose, enabling you to fund inventory purchases with minimal hassle and for a flat fee which can be cost-effective compared to other on-demand sources of funding..

Cons: it is not accessible to all, being limited to sizeable business with a track-record reliable sales. Some providers will require collateral, e.g. taking ownership of your inventory if you fail to repay in time, which poses an operational risk to your business.

Chosen provider: Treyd is our recommended supplier invoice financer. It is unique in offering unsecured financing based on the track-record of your business, paying your supplier upfront, and letting you repay up to 4 months later. This allows you to not tie up capital in inventory, increase orer sizes, and negotiate better terms with your suppliers, quickly and hassle free.

Visit Treyd to learn more and apply.

VAT refund advances

VAT refunds occur when a business pays more VAT than it owes. However, it normally takes anywhere from 1 to 4 months to get your refund, depending on where in your VAT return cycle you are. For businesses who regularly claim refunds, this can represent a significant cash drag. A cash advance is a loan secured against your future VAT repayment, which.

Pros: Cash advances on VAT refunds can provide quick access to capital and is accesible to most businesses, even those with limited assets or credit history.

Cons: Cash advances on VAT refunds can come with high-interest rates and fees. It works well for some businesses, but compared to other forms of financing which may be availble, it may stack up as expensive.

Chosen provider: Adsum is our recommended VAT refund advance provider. It is a fast, frictionless process, and lets you use cash to grow your buinsess today rather than wait for HMRC to process refunds.

Visit Adsum to learn more.

How to choose the right funding option

First of all, not all options will be available to you. Grants may not exist in your space. Or your business may not be large enough to attract private equity investors. Once you have done the groundwork and narrowed down the options that are available to you, the key factors you'll consider are:

  • How much cash do you need
  • How quickly do you need it
  • How long do you need it for
  • How much will it cost 
  • What are the documentation requirements

How these apply, and their relative importance, will be unique to your business, so the first step is to evaluate how each of the available options rank based on these factors. 

For many businesses, the right choice may well be to access multiple sources of funding to meet differing goals.

Need an accountant? Get in touch today. See how we can take your business to the next level, together.