Securing £125,000 Finance for an Established Retailer
Why ecommerce funding can be difficult to arrange
When an established retailer scaled their online business in 2020, they soon found that they were facing demand that required additional funding to answer. But, despite demand, they were unable to secure additional funding because their online business was outside the scope of most lenders. Rangewell looked at the challenges of running an ecommerce business and found the funding they needed with a line of credit.
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When lockdowns caused bricks and mortar businesses to close, online sales boomed. Many consumers have discovered the advantages of buying online from their computers and smartphones.
In the current climate, many established retailers are moving to an eCommerce business model - and discovering that their online operation is a profitable new approach that can deliver new markets and very rapid growth.
At Rangewell, we were recently approached by an established retailer with an eCommerce venture that was enjoying real success - but which needed funding to ensure that success could continue.
Our client was a bookseller, specialising in rare and collectable books. Their business was based in London and had been developing a reputation amongst serious collectors since the 1980s.
The business had originally been purely for visitors to the shop premises but, as time had gone on, the business had expanded, first acquiring additional premises and then branching out into mail order, providing catalogues of rare titles.
Eventually, they began to look at eCommerce and found the potential for a major new way of doing business.
“With a website, we suddenly had the entire world as potential customers. With some of our rarest titles, we were selling to the US and Japan. It was growing steadily, but when lockdown hit, things really started to get busy for our online arm.”
While the doors closed on the shop, their website became very busy almost overnight as people wanted books more than ever during lockdown.
“Obviously, we were competing with the likes of Amazon, but as a specialist antiquarian booksellers, as well as dealing in more everyday titles, we were working with a very different customer base. Once people found us online and saw that we had a title they wanted for their collection, they would keep coming back.
But we were doing more than just finding ways for our customers to buy from us. Now our customers could be from anywhere in the world.”
The only problem with the business was keeping up with the demand from web customers. The books were flying off the shelves and the partners saw that they needed to bring in more stock to cope.
Stock levels are vital to profits
“As booksellers, we have always had to keep our shelves full. Now those shelves were virtual - but they needed many more books to satisfy demand. We know where to buy the books we need but we needed to bring in thousands of extra books which meant tens of thousands of pounds of extra cash to cope with the growing demand. If we didn’t have a very expensive title someone wanted, we might be able to locate it amongst our contacts, but basically, we needed to have the titles in stock to despatch them immediately.”
But this would require paying money upfront to dealers and the secondhand book trade and, despite the success of the site, it was money that the business did not have. Some very rare titles would cost £1000 or more.
The partners were unable to raise the necessary funds when they turned to their bank.
“The bank didn’t recognise the potential of the new direction our business was taking. Worse still, we had run into problems with our traditional operation in the past. It was a couple of years ago when we hit a slow patch and had to close a couple of shops, but it meant a red flag for borrowing.”
The banks had taken a very cautious approach to lending in the wake of Covid and refused to advance anything to the business. Even CBILS lending was refused because of their historical issues.
“We had a rewarding new business model and definitely scope for global growth - but the bank just didn’t want to know.”
The partners turned to us at Rangewell for the solutions they needed.
Funding for eCommerce businesses
As experts in funding for eCommerce businesses, we understood the challenges that the bookseller was facing. With traditional retailers, lenders have years of experience to base their lending decisions on. The problems faced by the business in its old guise was a complete block on lending - despite the potential of the new direction the business was taking.
Many lenders will not look at applications in the eCommerce 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.
This is especially frustrating when online markets are booming.
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. This is a flexible funding product that enables businesses to draw on funds as and when needed. It 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 new stock purchases.
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 the fixed costs and commitments of traditional term loans.
This type of funding supports 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 for the client, initially capped at £125,000. 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.
As soon as a title was sold, the funds could start to be repaid - and drawn out again as soon as another book was bought.
We ensured that the provider would be happy to increase the credit limit as the business accelerated.
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.