Grow Your Business with Amazon Seller Financing

By August 8, 2019 October 29th, 2019 Financing
Grow your business with Amazon seller financing

Amazon Seller Financing: To Grow or Not to Grow, That is the Question

One of the biggest questions that small businesses eventually ask is whether or not it’s time for them to expand to the next level. The problem that small businesses run into when they start trying to scale up is finding the cash to increase their inventory. Here’s where the waters start to get a little murky. Some Amazon sellers think that it’s best to wait until they sell off their current inventory to start scaling up. That way they have the money in hand to purchase more inventory. Getting a loan for amazon is a scary thought since it comes with risk, but here’s one thing that most people never consider… it’s potentially a bigger risk to put off the growth of your business.

Simply put, waiting to scale a business means that you are missing out on opportunities that could be a game-changer. So, how do you know if Amazon seller financing is right for your business?

Ready for an Amazon Loan?  First, Pinpoint the Stage of Your Amazon Seller Business

You need to make sure you are at the right stage for growth. Amazon sellers are going to find themselves at one of these three stages:

#1: Established but struggling sellers – Sellers still struggling to monitor sales and performance metrics. If you still don’t have a grasp on who your primary customers are and what marketing efforts are providing you the greatest ROI, then your income is probably not consistent and relatively predictable, which are essential to successful financing. At this stage, a business is not ready to scale.

#2: A young business that’s ready to scale – This is defined as a business that is still young, but it’s been successful enough to look at expanding. At this stage, you’ll find yourself struggling to handle the volume of sales that you’re getting. Filling orders,  keeping your inventory stocked and replying to emails has become a full-time job. This is the point where you need to break through to the next level so that you can hire additional help. This is when the magic happens – your workload decreases while your revenues increase.

#3: Thriving, highly successful sellers – This is the position you want to be in, but it usually requires financing to reach this point. By now, you will have specific roles for members of your team, a defined marketing strategy, and your income will be fairly consistent.

How Can Amazon Seller Financing Help You Get From #1 to #3?

As an Amazon seller, getting from Stage 1 to  Stage 2 is probably not going to be because of amazon lending.  It is most likely going to come from:

  • Better understanding your customer
  • Ensuring that you are able to maintain a consistent and cost-effective supply chain
  • Optimizing your Amazon product listings
  • Dialing in your marketing efforts to ensure a positive return on those efforts

Once you have a good handle on the items above, then understanding how financing can help your Amazon business grow is of tremendous value. Using financing at key times is an important part of building and growing a sustainable Amazon business. But remember, financing is a tool, not a solution!

Restock your Inventory to Keep your Rankings

Amazon is one of the leading retailers in the world, and it’s not by accident. Their entire system is based on improving the customer journey. So when an Amazon retailer runs out of inventory, Amazon will stop showing that listing to customers. To put it bluntly, they don’t want their searches cluttered with empty listings. That means the moment a seller’s virtual shelves run empty, their current ranking will take a substantial hit. This is a short-term problem but it gets much worse.

What many sellers fail to realize is that if their product stays out of stock for too long, Amazon will drop their overall keyword ranking. All of that hard work of moving up to the front page takes months and is essentially lost in a fraction of the time. Then you’re back to square one!

One solution is to work through it with sponsored ads to regain some of the ground that was lost but the seller would still have to deal with that loss in revenue.

The problem is that you can’t grow a business this way because you’ll always be fighting from the bottom.

Invest in Advertising

2018 was a big year for the Amazon marketing platform. We saw companies within the United States spend a whopping $4.6 billion on Amazon advertisements. Amazon sellers will need to get into the habit of keeping their ads up in order to keep their shop from being overtaken by everyone else. The problem is that it’s difficult to find the money to put into an advertisement budget since most of a seller’s money in held up in inventory. One long-term strategy should be to always invest a percentage of profits into a marketing budget, but for sellers who have little capital that can be a difficult feat.

Loans for Amazon sellers can help leverage advertising in the beginning, providing the funds needed to get the selling process rolling. Amazon sellers must keep everything rolling in order to maintain their rank. Even small windows of lower sales can cause your ranking to plummet so it’s important that you always keep those ads up.

You can use Amazon seller loans to leverage growth by advertising more. The more money you spend on smart marketing, the more traffic you’ll have coming to your shop. More eyes on your brand means you are creating higher awareness.

Bridge Cash Flow Gaps with Amazon Seller Financing

Cash flow gaps are the most tracked statistic for Amazon sellers. The time between when you stock your inventory and when it sells is a deciding factor in a lot of your business decisions. With Amazon Sellers, cash inflows and outflows are rarely going to line up.

There are a few methods that you can use to avoid cash flow gaps, but the biggest one you’ll be concerned with is not over-ordering products for your inventory.

With that said, cash flow gaps aren’t the end of the world. They just create bottlenecks in the growth of small businesses.

Amazon seller financing provides you with the cash reserves needed to cover a cash flow gap.

Small businesses that are experiencing rapid growth are highly vulnerable to cash flow gaps. You do not want to halt that momentum. So get a handle on it by keeping a close eye on business costs, make sure you are not overstocking your inventory, and then use financing for Amazon sellers to fill in the gap.

Again, Amazon business loans should be the last step you take after getting a handle on everything else. Otherwise, you risk over-leveraging.

Use Financing for Amazon Sellers to Launch New Products

It all boils down to growth, which is the main reason why small businesses seek financing. In order to grow, Amazon sellers must be able to launch new products on a consistent basis. However, if sales are down for an extended period sellers might be forced to push back new product launches because they don’t have the money to invest. That will put all growth to a halt.

In order to fill inventory and market for new products, Amazon sellers have one of two choices:

  • Reinvest profits from sales.
  • Seek financing.

Both are viable options but the first one can potentially take much longer. The goal is to keep a consistent schedule for new product launches. Amazon seller financing allows you to maintain this schedule so your shop is not stalling its growth.

Tip: Before you launch a new product, you have to define its target audience. This is a step that 90% of Amazon Sellers never make, and the result is that their marketing campaigns fall flat. Never assume that all of your products are targeted to the same group. Furthermore, customers change rapidly so you need to stay on top of those changes.

Improve Margins with Financing

Small businesses constantly struggle with issues stemming from a lack of cash flow. There are a number of reasons including customers who pay late, investing in too much inventory, and low profit margins. Amazon sellers who are just starting out tend to solve this by reducing their prices and taking a cut on their profits. That’s quite risky because it can damage your overall brand. It also reduces the amount of cash that your business has to work with.

Before taking that kind of risk, make sure you have everything in order.

  • Are you restocking products that sell fast in a timely manner?
  • Does your marketing strategy appear to be converting?
  • Are you launching new products on a regular basis?
  • Have you taken the steps to bridge your cash flow gaps?

If your profit margins are suffering, then it’s likely going to fall into one of those categories. For instance, if you have one product that is selling faster than others, then you need to make sure you restock it as quickly as possible.

Amazon seller loans can improve profit margins because you are not forced to wait around on cash flow. You can continue to grow and expand your business. Essentially, financing for Amazon sellers is the way to leverage your business through bottlenecks that would otherwise halt growth.

Types of Credit Available to Amazon Sellers

Amazon Lending

Amazon Lending is an invitation only program where Amazon invites select sellers and offers a fixed rate loan based upon sales data and other metrics like product reviews, seller feedback, customer support, and inventory management. So, the application process is pretty painless since Amazon is reaching out to the seller through their merchant account dashboard and/or email.  FBA loan offers range between $1,000 and $750,000, the term is 12 months or less, and sellers may choose from a range of repayment terms.  There are no additional fees.  Once agreed, Amazon deposits the funds into your account within a couple of days.

A couple items of note:

  • If Amazon sales alone don’t cover the automatic payment, Amazon will use ACH to deduct the outstanding amount from your bank account.
  • Amazon retains the right to sell your FBA inventory to pay back the loan

For more information, check out Feedvisor’s post here and Fundera’s posts here.  Both are excellent summaries of the pros and cons of Amazon Lending.

Term Loan

Term loan is a fixed rate loan often no longer than 12 months.  Some require personal guarantees and rates vary so shop around.  Because of the move to accommodate e-commerce sellers, the application process can be as little as a couple of days since most are tying right into your seller accounts with full access to your metrics and sales history.

Revenue Advance

An advance charges a flat fee instead of interest like a loan, and it often does not require additional collateral other than the merchant’s future income. Advances normally have daily or weekly payments while a loan will typically have bi-weekly or monthly payments.  Advances are typically short term while loans are often longer term.  Since the lender is getting paid on your future income, revenue advances require stable income streams.

If you need money quickly and don’t have great credit but you do have predictable future income and you only need the money for a short time, then Revenue Advance is a prudent option.

Here is more detailed information on the difference between revenue funding and traditional loans.

Commercial Line of Credit

Commercial line of credit financing is money that is approved by a lender, allowing the business to access it anytime they need. It’s normally used to finance daily operations and these loans are usually paid back once funds become available. It’s a tempting option for Amazon sellers who need cash flow while waiting on their products to sell.

For example, let’s say that you want to add a new product to your Amazon shop but you don’t have the cash to do it now. You’re waiting to sell other products. A commercial line of credit might be a viable option. You could get the funds now in order to launch your new product and then pay it back once you have established enough cash flow.

Accounts Receivable Line of Credit / Inventory Factoring

Companies that are having cash flow gaps caused by customers taking a long time to pay will find that an A/R line of credit is a great solution. You can use your accounts receivable as collateral for a loan to help bridge that gap. In fact, this is a better solution for small businesses than a commercial line of credit.

A lender looks at a business’s accounts receivable and uses invoices that will be paid within 60 business days as assets that can be used as collateral. However, in order to use this method, your company must have high-quality invoicing and collection practices.

Invoices can even be sold outright to a lender in exchange for instant money.

Inventory Financing

Inventory financing is used to fund inventory. It uses whatever is being bought as collateral to secure the loan. There are actually companies that specialize in this type of loan but in most cases, you’re probably better off using a standard line of credit loan since the two loans function in almost the same way.

One of the downsides of inventory financing is that a lender is not going to fund the full value of the inventory. They will loan up to 80% of its appraised value. The problem is that sometimes the appraised value is lower than the retail value. However, the advantage is that inventory financing loans are easier to get approved than line of credit loans.

For Amazon sellers, it might make sense to get a loan on a partial value of inventory as you stock it but it’s more of a situational decision.

Foreign Exchange Financing

One lesson that a lot of Amazon Sellers learn the hard way is that accepting international payments can be tricky at times. Sellers often get hit hard by poor conversion rates and ultra-high transfer costs. The first thing that you need to keep in mind is that the global economy is based on the foreign exchange, which fluctuates on a minute-to-minute basis. This market determines how much one U.S. dollar is worth in comparison to other forms of currency around the world. Let me give you an example.

Right now, let’s assume that 1 U.S. dollar is equal to 0.79 British pounds. So a British customer buys a product that is worth $50. They would pay £ 39.50 for the product. Sounds good, right?

Well not really. Let’s say that you convert those funds one week from the date of purchase. However, during that week the exchange rate changes so that a British Pound is not as valuable. That would result in a loss of money from the time of purchase to the time the funds were withdrawn. Of course, it could also result in a gain if the reverse were true. This must be factored into all business decisions.

That is just the first consideration. Now you’ll need to consider how you’ll be collecting money. When you open an Amazon Seller account in a marketplace that is outside of the United States, you’ll have to do one of three things:

Method 1: Open a bank account in the market that you are planning to sell in.

Method 2: Use Amazon’s currency converter to convert funds to USD.

Method 3: Use a third-party foreign exchange service.

Opening a Bank Account in the Market You’re Planning to Sell In

This option gives you the most control over your money but it’s also the most complicated option available to you. Opening an account in a country where you sell allows you to transfer those funds to your main account whenever you want. However, due to the complexity of this method, I highly recommend you seek advice from a financial advisor.

Using Amazon’s Currency Converter

Using Amazon’s built-in systems is the simplest method for beginners. This option makes it so that you don’t have to have any bank accounts outside of the US. International payments are paid directly into your US bank account. The only downside is that there is a 4% fee associated with using this service.

Utilizing a Third-Party Foreign Exchange Service

Finally, there is another option for those of you who might not want to open an account in another country. You can hire a foreign exchange service like Hyperwallet or Fundbox. These services provide foreign exchange services. Money is transferred and exchanged at the appropriate rate and placed into your foreign exchange account. Then you can transfer it from that account directly into your bank account.

Amazon Seller Financing Lenders

The following is a starting list of lenders who focus on loans for Amazon sellers.  The list is by no means comprehensive, so please add others you like / have used in the comments, and we can add them to the post after reviewing them.

Amazon Lending

  • Amazon seller loans & FBA loans by invitation only
  • Easy application process
  • $1,000 – $750,000
  • Reasonable interest rates and no origination or pre-payment fees
  • Funds must be used to purchase inventory
  • Auto debit bank account if sales do not cover payment
  • Inventory is at risk
  • Monthly payment can be high

AMZ Lenders

  • Amazon loans specifically for Amazon sellers
  • Apply online in less than 10 minutes
  • No paperwork, credit check, tax returns, or financial statements
  • Minimum requirements
    • Business bank account
    • $2,500 in monthly sales
    • 500 complete orders
  • Single flat fee based upon a percentage of how much you borrow
  • Automatically deducts an affordable portion (typically 10 – 15%) of gross Amazon revenue when Amazon transfers sales funds to your account
  • Visit AMZ Lenders

AMZ Seller Financing

  • Up to $500K business loan leveraging blockchain technology
  • Quick application process – Apply in under 5 minutes
  • Requires 250+ completed Amazon orders, $10K in monthly sales
  • Typically funds in 48 hours or less
  • Flat fee payment based upon percentage of the loan amount. No hidden fees.
  • Automatic payment deductions
  • Visit AMZ Seller Financing

Bitbond

  • Global lending platform
  • Easy application with 24-hour approval
  • No credit score required
  • Equal monthly payments with online rate calculator clearly showing principal and interest payments
  • No early repayment penalty
  • Dedicated account manager
  • Available globally
  • Visit Bitbond

BlueVine

  • Line of credit up to $250K – Only pay for what you use, no prepayment penalties
  • Term loan up to $250K – Pay simple fixed weekly rate, no origination fees
  • Invoice factoring – Credit lines up to $5MM, fund only the invoices you want, no long-term contracts
  • Rates as low as 4.8%, fast approvals
  • Dedicated advisors
  • Visit BlueVine

Fundbox

  • Fast – Sign up in seconds. Get a credit decision in minutes.
  • No fees to apply. No minimum FICO required for funding decision. Ideally $50,000 in annual revenue.
  • Find out how much you qualify for, with no risk to your credit score
  • Easy – If approved, click to draw funds. They’ll arrive as soon as the next business day.
  • Pricing is simple – one weekly fee.
  • Choose an amount to draw and repay it over either 12 or 24 weeks, plus the weekly fee
  • Each week the amount you repaid (minus fees) becomes available again
  • Repay early, and they waive all the remaining fees
  • A great use case for supplemental capital
  • Visit Fundbox

Kabbage

  • Up to $250K line of credit
  • Simple application process – Get a decision in less than 10 minutes
  • Choose 6, 12, or 18 month terms
  • Simple monthly payments with no origination fees or prepayment penalties
  • You can review your payment schedule before taking a loan so there won’t be any surprises
  • Visit Kabbage

OnDeck

  • Term loans ($5K – $500K)
  • Lines of credit ($6K – $100K)
  • Min. requirements:
    • EIN and three months of bank statements
    • 1 year in business
    • $100K annual revenue
    • 600 FICO score
  • Helpful SMART Box Capital Comparison Tool for transparent pricing
  • Receive funds as soon as same day
  • Dedicated account manager
  • Visit OnDeck

Payability

  • Provides growth capital to ecommerce businesses
  • Get approved within 24 hours
  • No credit checks or external documents required
  • Must have at least 3 months of selling history and avg. monthly sales of $2,000
  • Instant Advance option is a purchase of future receivables. Payback is a fixed percentage (typically 25%) of daily sales.
  • Typical Instant Advance is 75% to 150% of one month in marketplace sales revenue
  • Instant Access option – Flat fee of 1 – 2% of gross sales
  • Instant Access – Advance 80% of previous day’s sales into Payability account. Remaining 20% (minus fees) is made available once markeplace payout is received.
  • Get up to 2% back with the Payability Seller Card
  • Visit Payability

Payoneer

  • Global payment platform that offers multiple ways to get paid online by international clients
  • Low cost – Save up to 90% on international transaction fees
  • Fast – Receive payments in hours
  • Get paid in multiple currencies, bill your global clients, sell on marketplaces worldwide, and pay your overseas business expenses at low cost.
  • Visit Payoneer

PayPal Working Capital

  • Similar to Amazon Lending only based upon sales in PayPal
  • Application process is quick and there is no credit check
  • Seller is notified within less than 24 hours and receives funds right away
  • Range of repayment options (based upon percentage of sales and time)
  • PayPal subtracts a percentage of sales daily until loan is fully paid off including interest
  • Visit PayPal Working Capital
  • Visit LoanBuilder (a PayPal service) for term loan up to $500,000 – PayPal account not required

SellersFunding

  • Term Loan – Rates as low as 14.99% APR; requires personal guarantee; no pre-payment penalty
  • Revenue Advance – Flat fee starting at 3% for 3 months; no pre-payment penalty
  • Requires 6 months of sales history with $5,000 per month average
  • Now able to lend on Shopify and Amazon seller revenue
  • SellersFx – Global payment platform that allows you to transfer funds from your SellersFunding account to over 180 countries; quick and easy conversions within 2 days. Seller can fix exchange rates for up to one year for future payments.
  • Integrate FX and funding solutions into the same account
  • Visit SellersFunding

Storfund

  • Finance domestic and international sales daily
  • Pricing – 2% flat fee on your Amazon balance
  • No origination or monthly fees. No transfer costs. No hidden charges.
  • Deposits 80% daily in your home currency and pays out the remaining 20% minus 2% fee on the day of your Amazon payout
  • Hedge fx risk
  • Saves between 3 – 8 times compared to a bank
  • Ideal for Amazon sellers looking to accelerate their growth with revenues between $250,000 and $1,000,000

UpFund.io

  • Inventory financing for Amazon sellers
  • No payments until your inventory is shipped and starts selling
  • Unlike Amazon loans, you pay off debt as soon as the product sells
  • Low flat rate fee compared to an APR based Amazon FBA loan
  • Visit UpFund.io

Prepare Yourself and Your Company

In applying for financing, it is critical that you are well-prepared in order to get the most favorable terms. You wouldn’t walk into a bank in a t-shirt and ripped jeans to apply for a loan, so don’t do the equivalent online.

Put yourself into the shoes of a lender and walk through these steps before applying.

  1. Look up your credit score to see how much risk you are in the eyes of a lender.
  2. Review your business’s finances and cash flow to determine how much you can afford to borrow.
  3. Decide when you need funds. You may want to spend an extra month or two pushing sales to increase the amount you qualify for before applying
  4. Estimate how long it would take to pay back those funds.
  5. Consider the ramifications if the worst case scenarios occur (like Amazon suspending a listing or even your account).

Small businesses require financing of some sort in order to grow but you still need to tread carefully.

Making the Final Decision to Finance

As an Amazon seller, the decision to seek financing can be a difficult one. Do you want to bring on debt or do you have to restrict the rate of your growth? The fact is that if you want to grow into a sustainable business, you’ll need more inventory and the funding required to keep up with that inventory. If you want to expand to the next level, then financing is an important tool in your arsenal.

One final thought. There is no single cookie cutter method of financing.  Take the time to compare lenders as well as the different types of loans available.  Then be sure that you have a well-conceived plan of repayment before you agree to anything.  Growth is great, but not at the risk of your entire business.

If you have questions or would like an introduction to any of the above lenders (along with exclusive partner rates with some of them), please do not hesitate to get in touch with us at [email protected].

Best of luck!

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