As e-commerce merchants’ needs become more complex, the ecosystem of small-scale lenders continues to expand to meet demand. On Wednesday, U.S.-based e-commerce loan provider SellersFunding announced its expansion plans to Canada and the U.K., a bet on the growing number of small merchants who can’t access capital from banks.
“The model is based on forward-looking sales, not performed receivables,” said Ricardo Pero, founding partner of Ridgewood, N.J-based SellersFunding. “We project what the seller will earn in the next three to six months; we take some performance risk and our overall transaction size will be slightly higher than other lenders.”
SellersFunding loans are based on direct integrations with e-commerce platforms, pulling in data that’s cross-checked with banking and credit information, Pero explained. In turn, the company uses machine learning models to underwrite borrowers. SellersFunding has integrations with Amazon, Shopify, Walmart, Chewy, Walmart.com, eBay and Jet. Loans provided through the platform typically range from $10,000 to $500,000. The company partners with Signature Bank in the U.S., DC Bank in Canada and Barclays in the U.K. The process from underwriting usually takes 24 hours or less, and the capital is available in additional 24 hours. To build additional flexibility, SellersFunding offers borrowers a grace period in some cases if they’re unable to make payments.
According to Pero, the company’s forward-looking assessment of lenders gives it a competitive advantage on the market, along with an individualized approach to customer service. The lending space for e-commerce merchants, however, is crowded. SellersFunding competes with Square Capital for eBay sellers; PayPal Working Capital, Amazon Lending, Kabbage and credit cards, among others. Many of these platforms can underwrite borrowers in minutes based on tech platforms that directly connect to transaction flows and non-traditional data points.
The growth of working capital options for small-scale sellers is the results of banks’ inability to serve this market, according to Juozas Kaziukėnas, CEO of e-commerce research firm Marketplace Pulse. “It’s the issue of being too small for a bank and, even if they talk to you, you don’t have enough history of business execution to be a bank client,” he said. “[Alternative lenders] have better data than a bank would have and can offer loans to sellers who would have no access to funding.” In addition, by integrating with e-commerce platforms, these platforms can acquire a better line of sight into merchants’ capital needs.
“[The loans] are not meant to be used for just anything,” said Kaziukėnas. “They’re usually meant for buying more products to sell in the future, and the payment terms are built around how much lead time you have for product manufacturing and how soon you expect to sell.”
With SellersFunding’s expansion to Canadian and U.K. markets, one conclusion that could be drawn is that banks in these markets also have difficulties serving small-scale merchants, according to David O’Connell, senior analyst at Aite Group. “The problem with lending to small e-commerce companies is that there’s no data with which to underwrite them — but that data is sitting somewhere, like on Amazon. It’s low-hanging fruit for banks to embrace.”