How Amazon Lending Helps Small Businesses Score Big Loans
Amazon now offers business lending options, but is it right for your FBA business? Here's what you need to know about Amazon Lending
Keyword(s): amazon lending
If you work with Amazon's FBA program, you know how exciting and life-changing this business opportunity can be.
Online retail is booming and shows no signs of stopping, and being an FBA allows you to get a piece of the action without maintaining your own warehouse. You get the brand recognition that Amazon has built, and Amazon handles customer service for you as well!
However, all business owners face cash concerns as they serve their customers. Obtaining great products, getting them to the Amazon fulfillment centers, and marketing them so that you get great sales takes time and money.
If you need a cash infusion, you may have considered Amazon Lending. Is it a good deal for an FBA? Here's what you need to know.
What is Amazon Lending?
Amazon offers small business loans through their Amazon Lending program. It can be a helpful way to get the capital you need to run your business.
The program has been available since 2012, but recently a partnership with Bank of America has expanded Amazon's lending ability so that they can offer help to more merchants.
Small business owners often have trouble getting financing through traditional banks. They simply don't have the kind of products, revenue, profit levels, and long-term formal business plan that banks look for. As a result, small business owners often bootstrap their operation.
The Amazon Lending program allows Amazon sellers to get loans between $1,000 and $750,000. To qualify, you have to receive an invitation. Invitations are given to sellers with great sales over at least 12 months who also have good customer satisfaction metrics and other qualifications.
Repayment Terms for an Amazon Loan
One thing that's very important to keep in mind is that Amazon Lending is intended as a short-term program only. You'll be expected to repay the full amount within 12 months.
While interest rates aren't published publicly, some say that loan rates range between 6% and 16%. If you receive an invitation, your exact offered rate will be included.
Amazon Lending will make a specific offer amount, and as a seller, you can choose the full amount or less. Remember, you'll have to repay it within 12 months!
Your monthly payments are deducted by Amazon from your seller account, so you don't have to worry about late payments. However, the same amount is deducted every month, regardless of your sales. Keep that in mind!
What You Can Use Amazon Loans For
If you're hoping that you can use an Amazon loan for a variety of business purposes, we're sorry to disappoint – the only really acceptable use for the funds is to build or replenish your Amazon inventory.
Amazon targets sellers that it believes are in a good position to grow their business with additional funding. The cash isn't meant for other uses. If you need short-term funding for another reason, consider other funding options instead.
The Benefits of Amazon Lending
As an FBA, Amazon Lending can give you a much-needed cash infusion to build up your inventory. There are other benefits as well.
If you receive an invitation, it's pretty easy to qualify for the cash. There aren't any origination fees, and you aren't penalized for paying off your loan early. If you've struggled to get a loan from other lenders, Amazon's program may be perfect for you.
If your FBA business is already doing well, boosting your inventory while expanding your marketing efforts can be a perfect way to find even more success.
Most importantly for many small business owners, getting a loan through Amazon Lending doesn't require a lot of time and effort gathering documents. Unlike a traditional loan, you don't have to get a business credit report, bank statements, financial projections, and more. Your seller history is enough!
The Drawbacks of a Loan Through Amazon
Despite the many benefits for Amazon sellers, there are reasons a small business might choose to decline help from Amazon financing.
Sometimes, your business isn't in a position where you need to invest in more inventory. If you don't feel that you can make enough extra sales to cover the loan plus interest, this isn't a good option for you.
The loan has to be paid off within a year. Sometimes it takes more time than that for your increased inventory to make a sizeable difference in your revenue, especially if you also have to boost advertising. And remember, this loan can't pay for marketing – it's only meant for inventory.
Being an FBA already comes with a lot of fees that cut into your bottom line. Having a loan with Amazon will increase that, especially because the payments are fixed every month. If you had a lean month, your fees and repayment may mean you get nothing for yourself.
Finally, the collateral for the loan is the inventory you buy. If you can't repay the loan, Amazon will take your inventory instead. In fact, they may hold it “hostage” and not allow you to sell it until you get back on track with payments, which is a double whammy!
Should You Use Amazon Lending For Your FBA Business?
There are benefits and drawbacks to Amazon Lending as an FBA. Amazon small business loans can be a great option if you want to boost your inventory but don't have the funds to do so right now. On the other hand, the terms are very limited and specific, so you need to make sure it works for you.
Interested in learning more about how to succeed as an FBA? We're here to help!
We have the courses you need to develop and run an incredibly profitable business. Take a look at our shop today!