Revenue Loans Are Fast Cash at a Price

A growing form of revenue-based financing can fund the marketing push or inventory boost for ecommerce merchants to capture growth opportunities. But “merchant cash advances” are often expensive and not suited to every business.

Ecommerce companies experience highs and lows. Merchant cash advances tend to work better when merchants are on the upswing.

A merchant cash advance (MCA) is a loan, a lump-sum payment, that the borrower agrees to repay through a fixed percentage of revenue.

According to Aidan Corbett, CEO of Wayflyer, an MCA and term-loan provider, three characteristics distinguish MCAs from other types of financing:

• Aligned outcomes between the lender and merchant,
• Revenue-based repayment,
• Speed and ease of approval.

Each can be beneficial, but with trade-offs.

Wayflyer offers merchant cash advances, as do Shopify Capital, Stripe Capital, and others.

Aligned incentives

MCAs differ from a traditional lender-borrower dynamic. The provider’s repayment depends on the merchant’s revenue performance. Both have a shared interest in success.

“I’m being careful not to say borrower and lender,” Corbett said, emphasizing that both sides benefit only if the merchant performs well.

In the United States, MCAs are typically unsecured and unregulated. If a business fails outright, the company providing the advance may lose its investment. MCA funders look for healthy, growing businesses.

The idea of aligned outcomes is a newer trend. Past MCAs resembled payday loans, but the best 2025 offerings emphasize a partnership model aimed at sustainable growth with transparent fees.

Revenue-based repayment

Borrowers repay MCAs through a share of daily or weekly sales, not fixed monthly payments. The share varies but is typically 10% to 25% according to published reports.

Corbett gave the example of an ecommerce company receiving a $100,000 advance. The repayment might total $106,000, with the $6,000 difference representing the provider’s fee. If daily sales are strong, the repayment is quick. If sales dip, the repayments slow down.

This structure is appealing to ecommerce shops with predictable, growing revenue. But it also means that repayment can begin before the business reaps the monetary benefit of the borrowed capital, especially for inventory or long-term marketing campaigns.

Fast approval

MCAs are fast. Ecommerce businesses can qualify within days after providing sales history and a plan for using the funds. There is typically no collateral requirement and no formal credit check.

Corbett said Wayflyer looks for growing brands with a broad product mix and high reorder rates. Stores with strong and consistent return on ad spend and efficient customer acquisition tactics are also favorable candidates.

MCA Use Case

Consider an ecommerce company selling home organization products with steady, year-round revenue. The company recently launched a new line of modular storage kits. Initial customer response is strong. Conversion rates are up, and test campaigns are returning a 4:1 ROAS.

A home improvement blog with more than 500,000 readers offers the business a two-week premium ad placement. The channel that has worked well for the merchant, but the $30,000 ad buy is time-sensitive, and the company doesn’t have the cash on hand.

A traditional loan won’t arrive in time. Instead, the founder uses a $30,000 MCA, agreeing to repay $36,000 via daily deductions from revenue.

The estimated boost in customer acquisition and long-term customer value more than offsets the financing cost.

It’s a good use case. The MCA funds a specific, high-return opportunity with relatively predictable payback.

Costs

MCA fees — “factor rates”— can be high. For instance, a factor rate of 1.2 on a $50,000 advance means the merchant owes $60,000 in total, regardless of the repayment period. A six-month payback can exceed 24% effective annual interest.

Still, Corbett said the MCA market for ecommerce has grown more competitive, and some providers now offer rates comparable to term loans, particularly for strong companies.

He advises merchants to shop around, avoid excessive origination fees, and never take an MCA with exorbitant effective interest. Fast money should not outweigh sound financial planning.

Dependency

MCAs can reduce cash flow before earnings materialize. Because repayments are tied to revenue, not profit, they can erode margins quickly.

Consider an ecommerce store with a 35% gross margin. If customer acquisition costs are 10%, payment processing fees are 2%, and the MCA repayment rate is 20%, the business retains just a 3% margin.

That razor-thin gross profit makes it difficult to self-fund growth or even cover operating expenses. The merchant may then rely on successive MCAs, falling into a cycle of borrowing.

Nonetheless, used strategically, MCAs can fund timely opportunities for growth. Thanks to Wayflyer, Shopify Capital, Stripe Capital, and similar firms, MCAs are increasingly common and beneficial.

BNPL Fuels Supplier, Retailer Growth

Buy-now pay-later loans can boost cash flow for wholesalers and retailers in 2025 and beyond.

Business-to-business sales bring to mind massive deals with million-dollar transactions, but many wholesale brands sell to small retailers, where deals are in the thousands, not millions.

“We have a few different sock brands running on Cin7, and they sell to kiosks and small shops,” said Ajoy Krishnamoorthy, the CEO of Cin7, which makes cloud-based inventory management software, in an email exchange.

“Those retailers place orders that are $1,000 or $10,000 worth and are often seasonally driven — perfect for BNPL,” stated Krishnamoorthy.

Cash Flow

In particular, BNPL for B2B may be a cash flow opportunity for both the supplier and retailer.

For wholesalers, BNPL accelerates cash inflows and reduces credit risk. For retailers, it aligns inventory costs with revenue, provides financial breathing room, and facilitates growth. Both parties benefit, making BNPL a powerful tool in modern B2B commerce.

Wholesalers

Cash flow is essential for manufacturers, brands, and distributors.

The trouble is that many often wait to get paid. Traditional trade credit arrangements have 30-, 60-, or 90-day terms. B2B BNPL addresses the issue by delivering the payment in a few days or less.

Imagine how much more a manufacturer could produce if a $10,000 invoice is paid tomorrow instead of 60 days from now. The business could rapidly reinvest, explore new marketers, or expand its product line.

BNPL mitigates credit risk. Wholesalers that extend trade credit to retailers are exposed to potential late payments or defaults.

Yet BNPL’s advantages come with a cost: loan fees of 3% or more, typically. Sellers can pay the fees or pass them to buyers. Regardless, there is a cost in money or customer relationships.

Retailers

Cash flow is also vital for retailers operating on thin margins. BNPL loans usually offer better rates than credit cards and are relatively more accessible than advances from a bank or finance company.

BNPL loans also offer flexibility. Imagine a small sock seller like the one Krishnamoorthy described. The seller decides to augment its online revenue with a kiosk at the local mall but doesn’t know how to forecast inventory needs.

With a BNPL loan, the merchant could purchase for the kiosk, say, five months’ worth of socks for its ecommerce shop. If the new mall location works well and the socks sell out, it is easy to pay off the loan early. If not, the seller can make monthly payments and sell the inventory online.

The interest rate will almost certainly be lower than a revolving charge card.

The example need not be a physical location. BNPL’s flexible payment terms and rapid application process could fuel new online opportunities.

The risk is relatively low, too. Missing a BNPL loan payment may result in penalties but generally avoids the high compounding interest of credit cards.

Finally, the merchant could generate revenue as the merchandise sells — the BNPL loan improves cash flow.

As with any form of credit, BNPL could be abused or misused.

BNPL for B2B

With its potential benefits, BNPL for B2B will likely accelerate in 2025. I’ve seen estimates of 27% growth this year, roughly mirroring the 25% growth projection for B2C.

Charts: Global Investor Trends 2024

For its fourth annual “Global Investor Survey,” PwC queried 345 global investors and analysts in September 2024 across various regions, asset classes, and investment approaches. The goal was to understand respondents’ expectations for the companies they invest in and cover and their views on risks and technology, including generative AI.

Thirty-six percent of respondents replied the companies they own or cover are “highly” or “extremely” exposed to geopolitical conflict and cyber risk.

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Investors emphasized the importance of companies adapting business models. Technological change was the top priority, followed by government regulation, shifts in customer preferences, and supply chain instability.

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Generative AI will drive significant performance gains without compromising employees’ roles, according to the respondents. Sixty-six percent expect the companies they invest in to achieve productivity boosts from AI within the next year, while 63% foresee revenue growth and 62% predict increased profitability.

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Moreover, the data also shows that investors are more inclined to view AI as an opportunity rather than a challenge.

Overstock Relaunches: Q2 2024 Recap

Back in 2009 I queried a marketing contact at Overstock.com about possibly interviewing Patrick Byrne, the CEO. “I’ll ask him,” the contact replied.

An hour or two later, I received an email — from Patrick Byrne.

The dialog and subsequent interview are memorable. He involved no public relations personnel — unusual for a publicly traded company — and required no preparation.

“Should I send my questions in advance?” I asked.

“No,” he said. “Ask whatever you want.”

We published the interview in December of that year. I learned he held a Stanford PhD and funded the construction of schools worldwide. He shared in the interview helpful ecommerce tips on holiday selling and shipping and was generous with his time, utterly unpretentious.

None of that squared with the Patrick Byrne years afterward, the one embroiled in nonstop investor lawsuits, who reportedly romanced a Russian spy, and, yes, the man scheming in the Trump Oval Office.

Bed Bath & Beyond

Nonetheless, I think of Byrne and the years-ago interview when Overstock makes the news, such as last year when it purchased Bed Bath & Beyond, the retail chain, out of bankruptcy.

Byrne had long since left the company. His successors evidently sought a post-pandemic reset and paid $21 million for whatever was left of the storied retailer. Thus began a disastrous chain of events.

• June 2023: Purchased Bed Bath & Beyond.

• October 2023: Rebranded “Overstock.com” to “BedBathAndBeyond.com.” Changed the corporate name to “Beyond, Inc.” and switched from the Nasdaq to the New York Stock Exchange with a new trading symbol of “BYON.”

• February 2024: Posted 2023 net losses of $307.8 million, a company record, on revenue of $1.56 billion, a 20% year-over-year decline.

• March 2024: Relaunched Overstock.com.

Q2 2024 Financials

By June 30, Beyond, Inc. operated two ecommerce sites, BedBathAndBeyond.com (housewares) and Overstock.com (discounted goods).

The Q2 financial statements do not segregate each site’s performance. Combined, the sites generated roughly $398 million of revenue for the quarter, a 5.7% decline from the previous year, with a net loss of approximately $43 million, a 42% improvement from the Q2 2023 loss of $74 million.

Beyond, Inc. acquired another bankrupt brand, Zulily, for $4.5 million in cash in March. Look for that retailer of women’s and children’s apparel to relaunch this fall, having ceased operations in December.

Beyond, Inc.’s stock price on August 22 was $11.02, a five-year low.