I have been working on launching a bank for the e-commerce space over the past 2 years (the Silicon Valley Bank implosion pushed the timeline back a bit, but still happening). I thought this was interesting to see since if you own an e-commerce or digital company, you know how hard it can be to get funding and lines of credit.

This release is from the National Association of Government Guaranteed Lenders (NAGGL), and this is the memo that they sent out to banks about the e-commerce space:

Moving forward to 2026, the industry is expected to continue on its current course as internet traffic volume continues to grow and spending further shifts from traditional retailing to e-commerce. The greatest opportunity for growth will come from product categories that were traditionally dominated by brick-and-mortar shopping, including groceries, major appliance products, and clothing. Revenue is estimated to increase at an annualized rate of 8.6%, reaching $1.0 trillion in 2026. As revenue continues to increase, the number of enterprises is also expected to rise. To effectively compete in this increasingly competitive market, companies will need to continue to differentiate themselves from competitors using targeted marketing campaigns, offering a wider range of products, and implementing new technology.

Business Types and Descriptions:

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• Amazon Stores – Established Amazon FBA store. FBA, which stands for Fulfillment by Amazon, is an e-commerce fulfillment system. In the process, Amazon takes care of product packaging, shipping, returns, and customer service. No logistics concerns and fewer shipping costs.
• On-Line Shops - Established online eCommerce store or Shopify business. This form of electronic commerce allows consumers to directly buy goods or services from a seller over the internet using a web browser or mobile app. Consumers find a product of interest by visiting the website of the retailer directly or by searching among alternative vendors using a shopping search engine that displays the same product’s availability and pricing at different e-retailers.
• SaaS Digital Businesses – “Software as a Subscription” Established digital businesses such as an app, website, or software service. SaaS is a software licensing model, which allows access to software on a subscription basis using external servers. SaaS allows each user to access programs via the internet, instead of having to install the software on the user’s computer.
• Traditional Businesses - Established traditional businesses with both physical and on-line sales.

Risks:

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• The vast majority of these transactions will have considerable unsecured exposure.
• The lack of hard collateral could result in higher losses in a liquidation scenario.
• Although other SBA lenders are active in e-commerce, the e-commerce industry is new to most lenders.

Rewards:

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• Many e-comm businesses provide loans with stronger cash flow, post-closing liquidity, and outside income than our typical 7a borrower.
• The loans should be priced at 2.75% over Prime which results in the highest possible premium for 10-year 7(a) loan sales.
• The loans typically fully fund at or shortly after closing. This allows us to sell the guaranteed portion and realize the premium income sooner. This compares favorably to multi-disbursement construction and equipment financing that could take 3 to 12 months to fully fund.
• E-commerce retail sales have grown 60% since 2015, topping $1 trillion. Census Bureau, Department of Commerce.
• E-commerce retail sales have gone from 7% of all retail sales to 16% since 2015. Census Bureau, Department of Commerce.

What are the takeaways from this?

1) e-commerce loans are far more profitable than traditional business loans for banks.

2) e-commerce loans allow banks to realize premium income faster, so they should be increasing lending

3) they still are antiquated, and dont understand how to track or reduce risk. How can you help them? provide regular and updated financials to ease concerns.

4) my concept for a bank is coming at the right time. We have plans to resolve the very risks the organization brings up. Most larger banks are too antiquated to be able to implement it.

Private Equity and Family Offices are starting to take notice of online sales. The holiday season is anticipated to be 30-35% higher than last year for online sales. More and more money is starting to come into the marketplace for e-commerce companies and it should get easier and easier for companies like us to get funded (woo hoo!).

Stay tuned for more details about the bank and how we are going to change how small business and banking work together.

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