The advancement of AI has impacted nearly every industry, and in the parcel logistics space, there’s a good amount of information available about how AI is altering or will alter operations. What hasn’t been largely addressed, however, is how AI is impacting the working relationship between online small- to medium-sized businesses (SMBs) and e-commerce lenders. PARCEL sat down with Eric S. Youngstrom, CEO and Founder of Onramp Funds, to discuss this industry shift.
1. How is AI currently influencing e-commerce businesses, particularly SMBs, in terms of funding models?
While AI isn't revolutionizing funding models for SMBs yet, it’s setting the stage for big changes. Traditional funding models rely heavily on credit scores and financial history, but AI can look beyond these limited factors by analyzing a wider range of data inputs. For example, AI systems can track performance metrics such as online sales growth, customer retention, and even social media engagement. These additional data points allow lenders to gain a fuller understanding of an SMB’s financial health and growth potential.
Platforms like Shopify can leverage AI to aggregate data across thousands of sellers, offering insights that individual SMBs might struggle to access. Shopify can detect trends within its seller ecosystem that help determine which businesses are thriving and which are struggling, providing more accurate risk assessments. This approach could lead to more flexible lending terms, with SMBs benefiting from lower interest rates or faster approvals based on AI-driven insights.
2. What role does AI play in inventory forecasting and cash flow management for SMBs?
AI’s potential in inventory management and cash flow forecasting is substantial but underutilized in SMBs. At present, most SMBs rely on basic tools to track inventory, such as spreadsheets or software that use simple metrics like sales velocity. However, AI-powered systems can offer a deeper level of forecasting. For instance, AI can analyze a wider array of variables — such as seasonal trends, weather patterns, and market demand — to predict future inventory needs with greater accuracy. This allows businesses to plan ahead, avoid stockouts, and prevent overstocking, all of which can improve cash flow.
Moreover, AI can integrate with other systems, such as accounting software, to offer cash flow predictions based on real-time data. For example, by monitoring supply chain disruptions, AI can help SMBs adjust their cash reserves and avoid unexpected shortages. This level of insight helps SMBs better manage working capital and align their finances with their operational needs. As the technology advances, AI could even recommend specific cash flow strategies to keep businesses financially healthy.
3. How can AI help small and mid-sized e-commerce businesses secure funding?
AI provides lenders with more comprehensive insights into an SMB’s financial behaviors, which can improve creditworthiness assessments. Traditional credit scoring models focus on narrow financial data, such as credit history and outstanding debt. AI, however, can analyze a broader range of indicators — like how often a business bounces checks, its daily sales flow, or even customer reviews — to paint a fuller picture of the company’s financial health.
For example, AI-driven tools can quickly flag issues such as pending lawsuits or negative press that might affect a business’s ability to repay a loan. In contrast to traditional credit bureaus, which might take months to gather this information, AI can detect these red flags within days or even hours, allowing lenders to make quicker, more informed decisions.
For SMBs, the advantage of using AI comes in securing better loan terms. By providing lenders with real-time data that demonstrates financial stability, businesses can potentially qualify for lower interest rates, larger loan amounts, or quicker approval processes. Partnering with platforms that integrate AI into their lending assessments can make a significant difference for SMBs seeking capital to grow.
4. What are the key considerations for SMBs when deciding to use AI tools in their operations?
SMBs must weigh several factors when adopting AI tools, starting with data privacy and proprietary value. Initially, many businesses may not have the resources to build their own AI tools, which means they will rely on off-the-shelf solutions that aggregate data from multiple users. While this can provide valuable insights, SMBs need to carefully consider what data they’re sharing. If data about sales, customer behavior, or pricing becomes too widely accessible, it could benefit competitors as well.
As businesses grow, they may find that their data is valuable enough to justify developing proprietary AI systems. For example, a business that reaches a certain scale may want to keep its pricing models, customer profiles, or supply chain strategies in-house. At that stage, SMBs should think about transitioning from third-party AI tools to custom solutions that give them more control over their data.
In the short term, using commercial AI tools can still be highly beneficial, particularly for tasks like inventory management, customer support, and marketing. SMBs should focus on leveraging these tools for operational improvements while remaining mindful of data privacy concerns.
5. What AI tools do you recommend to SMB businesses to run a more efficient business?
For SMBs, integrating AI into everyday operations can deliver significant efficiency gains. AI chatbots like Zendesk and Intercom are excellent for automating customer service. These tools offer 24/7 support, answering common customer questions and resolving issues without the need for human intervention. This not only improves customer satisfaction but also reduces the workload on customer support teams.
On the marketing side, AI-driven platforms like Dynamic Yield and Nosto enable businesses to offer personalized product recommendations based on customer behavior. Personalization has been proven to increase engagement and conversion rates, making these tools valuable for driving revenue growth.
For inventory management, tools like Inventory Planner help SMBs optimize stock levels by forecasting demand more accurately. By analyzing past sales data and current trends, these tools can reduce the risk of overstock or stockouts, improving both efficiency and profitability.
Finally, automation tools like Zapier are crucial for streamlining repetitive tasks such as order updates, customer notifications, and report generation. By automating these processes, SMBs free up valuable time to focus on growth and strategic decision-making.
6. How will future advancements in AI impact the e-commerce lending space, and how can SMBs prepare?
As AI evolves, the lending process will become faster and more accurate. Lenders will be able to assess creditworthiness in real-time by analyzing vast amounts of data from multiple sources, including sales figures, customer reviews, and even social media activity. This will give e-commerce businesses quicker access to capital, allowing them to react more nimbly to market opportunities.
To prepare, SMBs should start working with software providers that integrate AI into operational tools, such as cash flow forecasting and inventory management. Moreover, businesses need to exhibit strong financial behaviors, like maintaining consistent transaction flows and avoiding financial missteps. SMBs that demonstrate stability and growth potential will be better positioned to take advantage of AI-driven funding opportunities as the technology continues to advance.
Eric S. Youngstrom is Founder and CEO of Austin-based Onramp Funds, an innovative funding provider that supports the growth of eCommerce businesses. Eric leads a team steeped in eCommerce, providing financing and other resources to empower online merchants to scale their businesses and achieve their dreams.
This article originally appeared in the November/December, 2024 issue of PARCEL.
