What Are the Funding Options for Amazon Sellers?
Amazon business funding is a cash loan, or a line of credit sellers borrow for growing their business. The funding must be paid back, usually in installments, and involves monthly interest rates.
For traditional businesses, plenty of funding solutions are available. However, getting funding for Amazon business is more complicated. This is because banks are conservative and not used to dealing with online stores. Therefore, it’s harder for them to qualify for funding. In addition, banks are reluctant to provide small loans.
However, there is a way out. Keep reading to find out the funding programs Amazon offers sellers and other options you can use to scale your business.
What Is Amazon Business Funding?
Amazon business funding is financing, a loan, or a line of credit, sellers can borrow to expand their business or purchase additional inventory for big Amazon seller events like Black Friday and Cyber Monday. A business must repay that loan, usually in installments, plus an interest rate.
Why is it a problem to get funding for Amazon sellers?
As of today, there’s no such thing as an «Amazon loan.» Banks are not yet used to dealing with e-commerce retailers who don’t own huge physical stock. Since the banks are highly conservative, it complicates getting funding for online sellers compared to other businesses.
Also, traditional lines of credit require a lot of paperwork and signing collaterals, as well as take a lot of time. You’re tight on time in an online business and need to act fast.
In addition, banks are reluctant to deal with loan amounts under $100,000 because they typically focus on bigger deals.
How To Decide If You Need A Funding?
Business funding is an excellent opportunity to take your Amazon business to the next level.
However, you must be careful not to find yourself in debt because you overestimated your sales potential or underestimated your expenses.
Also, there are right and wrong times for funding your business. If you invest money before the Holiday season, the investment will likely pay off. On the other hand, the first few months of the year are typically the slowest for retail. Therefore, it’s not the right time to take a loan to sell during that period.
What to look into when lending funds?
- define the goals for lending the funds — purchasing inventory for significant seller events, expanding your portfolio, new marketing campaign, and more;
- analyze your financials and cash flow to decide if lending funds makes sense and how much you can afford to borrow;
- revise your credit score — estimate your credit risk level because it may influence the interest rate and other loan conditions;
- evaluate how fast you need funds — that affects the source of funding and interest rates;
- calculate how long it will take to pay back the money — that also affects funding conditions.
What Are The Funding Options For Amazon Sellers?
To get funds, you can use one of the two Amazon programs — Amazon Lending Program and Amazon Line of Credit, or use other options, for instance, SBA microloan, merchant cash advance, or peer-to-peer loans.
Below you will find several options with the expected interest rates, pros, and cons.
5 funding options for Amazon sellers
Amazon Lending Program
Amazon Lending program provides short-term business funding to qualified sellers for purchasing inventory. The program is invite-only. To participate in the program, you need to be selling on Amazon for at least a year, have total sales of at least $10,000 in the past year, and have a «Healthy» Account Health Rate.
The amounts you can get with the Amazon lending program range from $1,000 to $750,000, depending on your business scope and account health. Typically, the interest rates are between 3% and 17% annual percentage rate (APR).
Pros and cons
- no paperwork and credit score check — Amazon knows your account metrics;
- loans are approved within 5 days;
- low annual percentage rate.
- you can use funds only for purchasing inventory;
- a fixed amount is deducted monthly from your account;
- if you fail to repay the loan, Amazon can claim your inventory.
Amazon Line of credit
Another lending option from Amazon is the Line of credit program created in partnership with Goldman Sachs. It’s intended for Amazon businesses showing consistent growth. The program is invite-only.
Amazon Lending checks your seller data with online lenders Marcus by Goldman Sachs and offers the funding conditions.
Merchants can qualify for up to $1 million, paid off as needed. The interest rates range from 6.99% to 20.95% APR. No annual fee is applied.
Pros and cons
- funding possibility up to $1 million;
- the application process is online only;
- possibility to use the funds for the purposes and at times when you need them.
- invitation-only program;
- if 30% of the credit line is not utilized, maintenance fees apply;
- late payment fees apply.
Small Business Administration (SBA) is a government organization providing funding to for-profit small businesses. This loan is suitable for small business owners with limited credit possibilities, who are launching and expanding their operations. The loans are provided by SBA-approved lenders.
To qualify, you should be a for-profit small business with no bankruptcy record in the past 2 years. You’ll need to provide a business plan, financial statements, licenses, and permits.
The loans range from $500 to $50,000, and the terms range from 6 months to 6 years. APR is 8 -13%.
Pros and cons
- you can use the money for different business purposes;
- funding is up to $50,000;
- no minimum personal credit score levels.
- longer application process;
- you must submit a business plan, financial statements, and licenses;
- you can’t use funds to pay debts.
Merchant Cash Advances
Merchant Cash Advances (MCA) are cash advances you get based on your estimated future sales. It’s a fast way to access funds—you can get money within a few days. However, this can be a costly option. As a rule, lenders charge daily repayments to your credit card.
With MCAs, you can receive up to $200,000; the payback time is usually 18 months or less. As a rule, MCAs charge factor rates instead of fixed interest. The factor rates apply to the total cost of your loan and range from 1.2 to 1.4. APRs on MCAs can reach 350%.
To apply, you must own an established company with stable finances.
Pros and cons
- flexible conditions;
- fast and easy application process;
- no collaterals are needed.
- high APR;
- a big part of the profit is spent on repayment;
- you can’t change your merchant processor account until you repay the total amount.
With the Peer-to-Peer (P2P) model, small businesses get funding by placing the loan amount on a P2P lending site and specifying the interest they’re willing to pay. Interested investors bid on your loan if your credit history suits them. This option is intended for start-ups or newly emerged businesses.
Interest rates depend on the lender and typically range from 4.52% to 9.5%.
Pros and cons
- diverse loan types to choose from;
- investors make lending decisions not only based on credit score;
- you don’t need to pay anything until you start using the funds.
- approval time can take weeks;
- conditions vary from lender to lender;
- a minimum of six months of sales history is required.
Amazon business funding is a cash loan for sellers allowing them to sustain their business growth.
Despite the variety of funding solutions available for traditional businesses, getting funding for Amazon business may be more complicated. However, there is a way out. There are funding programs Amazon offers sellers and other options like SBA microloans, merchant cash advances, or peer-to-peer loans. You can use them to scale your business.
To get a loan, you must thoroughly calculate your expenses to be sure you can timely repay it and avoid piling up debt. Seller Assistant Аpp’s FBM&FBA calculator helps you do so.
Seller Assistant Аpp is an all-in-one extension incorporating all features vital for product research. Advanced IP Alerts can immediately tell you if a product has any sales restrictions or has previously triggered problems with account health. It combines an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker in one tool.