As with any kind of business owner, Amazon sellers can fall victim to the odd financial bump in the road which can threaten their livelihood.
In 2011, Amazon launched its lending service for small businesses with a particular focus on Amazon sellers, and in this article, we’ll take an in-depth look at this service and see if it is right for you.
What is Amazon Lending?
Amazon Lending is a business loan provider that has paid out over $3 billion in loans to customers in the USA, the UK, and Japan following its inception seven years ago.
Depending on your circumstances and how ‘trustworthy’ Amazon thinks you are, you may be eligible to apply for a loan between $1000 and $750,000.
The aim of the service is to provide financial assistance to small businesses and entrepreneurs such as Amazon sellers by funding activities such as purchasing of inventory, marketing, and business expansion.
Amazon Lending Requirements
In order to qualify for an Amazon loan, you must fulfill some important criteria – these are:
- You must be an Amazon seller – as Amazon Lending is invitation-only, it will only be extended to those who have an Amazon seller account.
- You must be over 18 years of age
- You must have a good credit rating in order to be approved for financing
- You must have a proven track record as an Amazon seller. When processing your application, Amazon will analyze your sales records and reviews before making a decision.
You can log in to the seller central to check if your seller account is prequalified for the funding service.
How to Apply for Amazon Lending
Amazon sellers are invited to apply for Amazon Lending directly through their seller account.
Applying for Amazon Lending is fairly straightforward and, works as follows:
- Log into your Seller Central account
- Check to see if you have an invitation
- Check to see if your business has pre-qualified for a loan
Choose the amount of loan required (up to the pre-qualified amount) and how long you need to repay it
Funds will typically be paid into the seller account within average five working days.
Amazon Lending FAQs
These are some of the frequently asked questions about Amazon loans and will help you get to know it more clearly.
What can I use an Amazon loan for?
Your loan can be used for the following activities:
- Buying inventory, including bulk buying
- Product development
- Marketing and advertising
- Production equipment
- Business building
How long does the application process take?
In most cases, you will receive a decision on your loan application within five working days, however, in some instances, Amazon may need further information/documentation, in which case lead times will be longer.
How do I repay my loan?
Amazon Lending repayments are taken directly from the seller account. If there are insufficient funds in a seller account on the due date, the balance of the repayment will be withdrawn on the following due date.
Can I pay off my loan early?
Amazon loans may be paid off at any time without incurring any early payment penalty charges.
My business is not pre-qualified, can I still apply?
Amazon Lending is currently offered on an invitation-only basis. If you are not pre-qualified, you won’t be able to apply for a loan. You can, however, access the Help section in your seller account to find out how you can improve your track record in order to qualify for a loan.
Amazon Lending – The Pros And Cons
- Speed – Compared to other lenders, Amazon loans are paid out really quickly – which can be hugely important for sellers needing to take advantage of things like special offers on inventory purchases.
- Convenience – Due to pre-qualifying, the application process is simple and straight forward.
- High loan ceilings – Qualifying sellers can borrow up to $750,000 which can make a huge difference to a seller looking to expand his or her business.
- Reputation-based – Although Amazon does perform some credit checks, approval is based more on a seller’s track record than on a credit score.
- Long term support – Following the successful repayment of an initial loan, sellers can immediately reapply.
- Exclusive – Amazon Lending is currently only available to Amazon sellers with a good sales record.
- Expensive – Amazon loans are short term and, subject to interest rates similar to those charged by credit card companies.
- Short repayment terms – Amazon loans are subject to a maximum repayment term of 12 months which, in turn, means that monthly repayments can be high.
Do you Need an Amazon Loan?
It’s really important to think carefully before committing to any financial product and, before applying for Amazon Lending, you need to ask a number of questions, including:
How can an Amazon loan help me?
An Amazon loan can help you by offering a short term cash injection when you need it most. This can be used for a number of things as long as they relate to your business. These can include buying inventory, buying new equipment or storage space, and expanding your business.
Why do I need an Amazon loan?
You may need an Amazon loan if you are experiencing short term difficulty or, if you don’t have the ready cash to perform the desired business expansion.
What will I use the loan for?
Amazon Lending exists to help sellers to improve or expand their business and, is not a personal loan.
How urgently do I need a loan?
Is it necessary to have a loan within five days or, are you able to wait longer and maybe achieve better terms elsewhere?
Do I actually need an Amazon loan to achieve my objectives?
Would it be more cost-effective to use savings or a different kind of loan?
Is it risky?
Any loan comes with a certain amount of risk. With an Amazon loan, you risk some serious consequences if you do not keep up with your repayments. These include your inventory being seized, your account being frozen and, damage to your credit rating.
Can I afford the repayments?
Do you earn enough from your business to comfortably make the repayments every month?
What happens if my business goes bust?
Will you still be able to make the repayments if your business is no longer generating income?
Will it be worth it once I balance the cost of repayments with the purchase I wish to make?
A cost assessment may help you to decide if a loan will be beneficial. In general, though, as long as you are careful about making the repayments on time, Amazon lending is worth it as it helps you to pay for what you need and provides a future credit line.
Things to Know Before Applying for Amazon Lending
Here are a few things that you need to consider before getting a loan:
Legally Binding
As with any financial product, once you agree to the terms of an Amazon loan, this is legally binding.
This means that defaulting on payments will have consequences not just for your Amazon selling business but on your customer relations and, on your credit rating.
This may result in your being able to get loans, overdrafts or credit cards in the future.
Credit Score
Applying for an Amazon loan may affect your credit score adversely – whether you are approved or not.
Your credit score tells a financial company whether or not to trust you with a loan, overdraft, or credit card. Once your credit score is damaged, it can be very difficult and time-consuming to fix it as this involves rebuilding financial trust.
Repayments
As with any financial product, you will pay interest on your loan – for example, if you borrow $20,000, you will repay $1,823 per month for 12 months.
You need to carefully calculate your loan repayments to see how much the interest will be and, most importantly, whether or not you can afford the loan.
Default
If you fail to make repayments on your loan, Amazon may seize your inventory or withhold your payments in order to recoup the amount owing.
As we’ve mentioned, this will probably affect your future lending too as, defaulting on payments has an adverse effect on your credit score.
Defaulting on payments will also affect your customer relations as, if Amazon freezes your account and assets, you will be unable to fulfill customer orders.
Alternative Loan Companies To Amazon Lending
Before committing to an Amazon loan, it’s worth shopping around as you may be able to achieve a more favorable rate elsewhere.
The following are some alternatives to Amazon Lending:
Bank Business Loans
You may be able to apply for a business loan through your normal business banking, depending on your circumstances.
If so, this may offer a better rate and longer repayment terms than Amazon Lending.
Peer To Peer
If you are unable to secure a traditional business loan from your bank, you may qualify for a peer to peer loan. These are group funded loans run by companies such as Funding Circle and, often have more relaxed criteria than traditional loans.
Line of Credit
Some banks offer a business line of credit which is a small, short term loan designed specifically for businesses looking for a quick financial fix.
Bridging Loans – These are a form of short term loan designed specifically to form a ‘bridge’ between one source of income and another in order to keep cashflow flowing.
Payability
If the bank takes long approval processes, low approval rates for small businesses and view you as too big a risk, Here is an option exclusively for eCommerce businesses.
Payability offers Amazon and eCommerce businesses next-day marketplace payouts and capital advances based on their sales performance and account health – not credit.
As a result of this unique underwriting process, there are no credit checks and sellers get approved for funding in under 24 hours. And sellers can receive a $200 sign-on bonus via here.
These tend to have high-interest rates and so should only be considered as a last resort.
Alternative Reputable Online Loan Companies
Funding Circle – A peer to peer lending service for businesses. Take a quick eligibility check online before proceeding to the application.
Fintex Capital – Peer to peer lender specializing in businesses facing insolvency. 24-hour decisions on loans up to £350,000.
Thincats – Business loans for growth investment. Run by a community of accountants and corporate finance specialists.
Swish Fund – Fast business loans up to £250,000. Fast online process with funds paid out within 24 hours of acceptance.
National Business Services – Funding options exclusively for small businesses. Business financing is dependent on credit score.
Think Business Loans – Straightforward business funding. A comparison site which compares over 200 commercial lenders.
Swoop Funding – A one-stop shop for all business finance products. Speedy access to loans, grants and equity funding online.
Liberice Finance – Cash advances for business. Allows users to defer repayments until payment is received from clients.
Tide – Offer business bank accounts and loans. Bridging loans for small businesses – short term loans for business looking for financial assistance.
Conclusion
For the successful Amazon seller, Amazon Lending can provide a really helpful line of credit. The fast turnaround means that sellers can take advantage of special circumstances, such as inventory being sold cheap or business expansion to fill a gap in the market.
For those with good sales and enough income to guarantee repayments, Amazon Lending is a hassle-free alternative to bank lending.
If, however, there’s a chance that you won’t be able to afford repayments, you need to keep in mind the fact that this may destroy your business.
As we’ve mentioned, Amazon will not hesitate to seize your inventory or hold your payments hostage so, it’s important to carefully weigh up the benefits and risks before going ahead.
It’s also worth bearing in mind that, if your business is successful and you have a good credit rating, you’ll almost certainly be able to get a better deal elsewhere, for example, from your business bank.
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