Most small business owners require loans in order to grow their business and succeed. But as the owner of a small ecommerce business, or any business for that matter, you may find it difficult to get the lending you need. About 80% of small business owners who apply for a bank loan get rejected. That’s an incredibly high number. And if you can’t get a loan from a bank, where do you get one? Some businesses find success using business credit cards, but even those require approval and usually come with hefty fees.
Amazon has answered this question for many sellers with the introduction of its Amazon Lending program in 2011. But is this option the best choice for your ecommerce business? We’ll give you all the details you need about the Amazon loans program so you can make the best decision for your business.
What is Amazon Lending?
You may be asking yourself what Amazon Lending even is. There currently isn’t much information readily available on Amazon.com because it’s an invitation only program. Not just anyone can apply for a loan through Amazon. Instead, the company identifies sellers they believe might be good candidates for the program and sends them an offer in their seller account.
These loans are meant to help sellers grow their business by giving them necessary funds for inventory replenishment. If you get an offer in your seller account, you still must go through an approval process, but it’s usually very quick.
How Do Amazon Loans Work?
As mentioned above, this is an invitation only program. The offer you receive will usually contain all of the following:
- Loan amount (offers range from as low as $1,000 to as much as $750,000)
- Interest rate
- Repayment period
- Total amount you’d be paying back.
There’s no massive amount of paperwork to fill out since Amazon already has your personal info and sales history. If you decide to accept the offer, your application is sent to Amazon for approval and you can be approved in as little as 24 hours. Once you’re approved, funds are then deposited as soon as the next day.
Amazon will then begin deducting fixed monthly payments from your account until the loan is paid back in full.
How Do I Qualify?
Though no one knows all the minute details of the qualification process for an Amazon loan, we do know that less emphasis is put on personal credit and is instead focused more on the performance of your business.
NerdWallet reports that Amazon’s loan agreement states they can pull a credit report. However, they also take into consideration your sales history and customer satisfaction rating. The application process is relatively simple with one seller reporting to NerdWallet that it only took a few clicks.
What are the Terms of an Amazon Loan?
Amazon doesn’t disclose the rates of their loans publicly, but some have reported that they are similar to or less than those of credit cards. The loans are meant to be short term and used to help you replenish inventory so the repayment period is capped at 12 months.
Payments are fixed and the same amount will be deducted out of your account every month regardless of how well or poorly your account is doing. So, if you have a bad month of sales, the payment will still be taken from your account. If you don’t have enough funds in your seller account to cover the payment, Amazon can deduct the remaining amount needed from your personal bank account.
These loans can be a great way to get the funding you need to continually replenish your inventory and continue to grow your business. If you repay the loan in the time period allotted, Amazon will typically offer you another loan to keep the growth moving.
Are Amazon Loans Right for Your Business?
Though these Amazon loans may seem like a great option, they may not be the perfect solution for your unique business needs. Before you jump in blindly, there are some things you need to consider before you sign any loan agreement:
- Will you be using the loan funds for inventory? If the answer is yes, you’re all good. If not, then this isn’t the lending option for you. Amazon loans are meant to be used only for replenishing your stock. According to Fit Small Business, if you accept Amazon’s loan offer, but they do not see new inventory added to your account, they can report you for breaking the agreement and take legal action.
- Are you prepared to pay the loan off quickly? These are short term loans that are meant to be paid off in 12 months or less. If you’re planning to take out a loan for a large sum, but aren’t prepared to make high monthly payments to repay it in that short time period, this isn’t a good option for you.
- Know the risks if you default. Just like with any other loans, there are risks if you for some reason can’t make your payments and default. Amazon will automatically deduct the monthly payment from your seller account, but if there aren’t sufficient funds to make the payment, they can use your Amazon inventory as collateral. Fundera reports that Amazon may seize your inventory and hold it hostage until you pay them back. Or they may choose to sell the inventory themselves and keep the profits to pay off the loan. Even if you’re an FBM seller who fulfills their own orders, Amazon can choose to keep your profits until the loan is paid in full.
Grow Your Amazon Business!
In order to experience growth and turn a larger profit, most small business require some sort of loan or credit line. Amazon’s lending program can help you do just that, but there’s more you could be doing, too.
Make sure you’re picking the right product by doing thorough product research beforehand and identifying a market that will be easy to break into.You can also position your current products for even bigger success by investing in professional product photography or an optimized listing. The team at Viral Launch is here to help you grow your business, and our customer success coaches can provide expert advice about all things Amazon. Get in touch today to take your business to the next level!
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