Case Study: funding an eCommerce business that was growing too fast
TL:DR When a new online business found that they were facing demand that they could not handle, they saw that despite a full order book, they were unable to secure additional funding. They approached us at Rangewell. We looked at the challenges of running an eCommerce business - and found the funding they needed with a line of credit.
With stay-at-home orders preventing customers from coming in and lockdown preventing many shops from opening, brick-and-mortar premises have been forced to temporarily close. However, the same factors have given a boost to eCommerce businesses, which use a website as their showroom and point of sale. Instead of a quick run to the store, many consumers are now browsing and placing orders from their computers and smartphones, with both new and experienced online shoppers purchasing greater quantities and varieties of products than ever before.
There are plenty of challenges for eCommerce businesses, but with the right combination of products, price and online marketing, they are capable of profitable trading and very rapid growth.
At Rangewell, we were recently approached by a new eCommerce business that was enjoying real success - but which needed funding to ensure that success could continue.
Our client was a clothing manufacturer based in the Midlands. They specialised in licensed designs - clothing of all types from t-shirts and polos to sweaters and complete outfits, with characters and images from the world of music, games and movies.
“We started off selling band shirts at gigs. Naturally, we had a website, so fans who missed us at the live event could still get the merchandise. When it became impossible to stage live events, we started making the most of our site.
We really started in April, when we might take £10,000 a day. Now we are closer to £35,000 per day. We are selling officially Licensed Merchandise ranges with Disney characters and these days that means Star Wars and Marvel characters as well as the mouse and Duck Tales - and there is always demand. So much that we can hardly keep up with it.
Making the most of our site meant that we could sell any of our ranges to customers anywhere in the world. We found business was actually getting better as lockdown wore on.”
The business had a small UK-based warehousing, packaging and fulfilment centre, but most manufacturing was done in the far east where costs are lower.
“These days, distance manufacturing is no problem. I can pick up the phone or get on a zoom conference and talk to our manufacturers at any time. So if we have a sudden rush on something like a Hogwarts Christmas jumper, we can get the stock flown over in a few days.”
The only problem with the business was keeping up with the demand from web customers. The order volumes required were getting larger, and with Christmas coming, the partners saw that they needed to bring in considerable quantities of their best-selling lines to cope with the growth of the business.
But this would require paying money upfront to the manufacturers and, despite the success of the site, it was money that the business did not have. Funding of £500,000 to £1million would be required to bring in enough stock to see them through.
The partners were unable to raise the necessary funds when they turned to their bank.
“The bank didn’t understand our business and, because we had been trading in our present form for under a year, they were not prepared to advance us anything - despite the success of our business. We had no advance orders to use as security, and they had no experience of the potential of online businesses.”
The partners turned to us at Rangewell for the solutions they needed.
Funding for eCommerce businesses
As experts in funding for eCommerce businesses, we understand the challenges. With traditional retailers, lenders have years of experience to base their lending decisions on, and bricks and mortar retailers can have physical assets - such as their premises - to offer as security.
eCommerce is rather different. Many lenders will not look at applications in the sector because it is outside their experience. Consequently, eCommerce businesses tend to suffer from cash flow shortages and find their growth plans frustrated because they cannot find the finance they need.
Fortunately at Rangewell, we have a team of eCommerce experts who understand the challenges you face when it comes to funding - and know the solutions that are available.
The most popular of these is a line of credit. A business line of credit is a flexible funding product that enables businesses to draw on funds as and when needed. It’s typically used for immediate expenses rather than long-term investments, and acts very much like an old-style overdraft.
A line of credit provides a pre-approved reserve of credit that you can call on as you need to at short notice. It’s a good option for eCommerce businesses that need short-term cash to cover expenses, for example, online advertising costs and new stock.
When orders and cash then come into the business you can pay off what you have borrowed - which means that the cash you have taken out and repaid is ready to be taken out and used again.
You pay interest only on the amount used, which means you avoid fixed costs and commitments which are unavoidable with a traditional term loan.
But this type of funding has another important advantage. It helps keep pace with the growth of your business, because the more business you do, the more cash you generate and the quicker you can repay the amounts you take out.
As your business grows, you can apply to extend the line of credit you can call on - ensuring that your further development is supported and that you can bring in stock to meet the demand your online presence generates.
The funding Rangewell secured
We arranged a line of credit, initially capped at £1million, for the client. It provided the flexibility they needed to stock up for the December demand, and because the amount drawn out could be repaid as soon as customer payments were received, the costs were moderate, compared with the increased revenue that could be generated.
Rangewell finds the financial solutions that your business needs
Whatever business sector you work in, our Business Funding Experts will be able to discuss your individual options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business conditions are presenting you with.
We are independent, and we know the entire lending market. That means we can take a view that will put your interests first - and if you have not been successful because of your bank’s lending policies, we will work to find one that is more sympathetic.
At Rangewell, we can help you arrange all types of business funding - including line of credit arrangements. Call us if your eCommerce business faces a funding challenge - we can help you find the answers you need.