Editor's choice: Lendio business loans
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Looking to take your Amazon business to the next level? Online lenders can help you get the funds you need to invest in working capital or market your brand. Approval may be easier than through a traditional bank, especially if you’re new to the Amazon Marketplace or don’t yet have a large customer base.
When you’re running a business through the Amazon Marketplace, you may find it difficult to get a traditional bank loan. Find financing alternatives that can help you shore up your cash flow or reach more customers.
If you’re a seller who’s been with Amazon for at least a year with decent metrics, you may receive an offer from Amazon for a direct short-term loan to use toward purchasing new inventory. Amounts range from $1,000 to $750,000 with terms of up to 12 months, depending on your seller account. While Amazon doesn’t advertise the terms you might be offered, former borrowers cite interest rates of 6% to 16%.
A major downside of Amazon Lending is that your funds are earmarked for Amazon alone. If you need capital to diversify your online store outside of the marketplace, you’ll have to look elsewhere.
A business line of credit provides flexibility when it comes to your spending. Much like a credit card, you have a revolving credit line for purchases or cash withdrawals whenever you need it. Use this money for almost any purpose — it’s not limited to your online inventory, like with Amazon Lending. Available in amounts from $5,000 all the way up to $5 million, a credit line can be a handy tool to pay for marketing services or hire seasonal help to fulfill your orders. Most providers charge an annual fee along with interest on the funds you withdraw.
Because Amazon businesses bring in the majority of their revenue through credit card sales, a merchant cash advance could help if you’re having cashflow issues. Essentially, you borrow a lump sum based on your credit card sales and repay it along with a fixed fee and a percentage of your daily or weekly sales. You can often borrow from $2,500 to $250,000 and get funds in just a couple of days, making it ideal if you’re in a pinch. However, it can be difficult to meet the repayment schedule if your business makes only a couple of large sales a month.
If you need a large influx of capital, then a business term loan might be a solution. Many banks and credit unions offer these loans, but you may find approval easier with an online direct lender requiring less stringent eligibility. Amounts range from $5,000 to $5 million, depending on your annual revenue and credit history. Most charge interest plus fees, which you pay back in fixed monthly repayments — usually over five to 20 years. Because of the large variety of business loans out there, start your research by pinpointing exactly what you need the money for and creating a business plan to understand costs and goals.
A peer-to-peer (P2P) business loan is similar to a business term loan, except it’s funded by investors, rather than a direct lender. P2P providers usually act as the middlemen between borrowers and investors. They oversee the application process, underwriting and repayment, but they don’t actually fund your loan. You pay back these loans with interest and fees in monthly installments that can be expensive. Because P2P providers don’t have the same return on investment as direct lenders, they typically charge higher fees.
Personal loans are good for online merchants who are just getting started on Amazon or other selling platforms. Many lenders allow you to use a personal loan for business expenses. They typically offer from $2,000 to $50,000, which can be useful if you’re looking to buy inventory or hire marketing professionals. This type of financing relies on your personal credit score and income rather than your business’s, with APRs ranging from 5% to 36%. Like business term loans, you’re charged interest and fees that you pay back in monthly installments over two to seven years.
The best loan offer is the one your business can afford. Generally, if you’re operating solely through the Amazon Marketplace and have been around for at least a year, Amazon Lending offers solid terms for its sellers. However, if you’re new to the Amazon scene or want to diversify your income with other e-commerce websites, you may want to consider a different type of loan.
Choose a short-term option like a merchant cash advance if you need fast turnaround. Purchasing inventory or paying for marketing are generally simple expenses that can be paid off quickly.
A loan for a longer term might be ideal if you’re looking to expand beyond Amazon or you need to refinance large debts. Term loans and peer-to-peer loans tend to offer the longest terms and highest available loan amounts. Some may require you to put up collateral, which can lower your interest rate but puts your business at risk if you default.
E-commerce businesses take on expenses that can differ from those of a traditional brick-and-mortar storefront. A lot of your revenue goes toward marketing, inventory and fulfillment for your online business. And when you’re working through the Amazon Marketplace, you’ll also pay fees for using Amazon’s services.
No matter the loan you’re applying for, you’ll need to provide basic documentation that includes:
Lenders will check your credit history for any past defaults or bankruptcies when reviewing your application, but a few imperfect areas won’t necessarily exclude you from approval. Focus on what you control, like creating a top-notch business plan, to make up for it.
You might find it hard to get financing to start or build out your business through traditional lenders. With so many online businesses on the smaller side, banks often shy away from offering financing unless you have a proven track record.
Many nontraditional lenders are willing to extend loans to Amazon sellers, although you may still face hurdles when applying. If you don’t have enough revenue or haven’t been in business long enough, you may not qualify for Amazon Lending or similar loans.
In that case, look for loans designed for startups and small businesses. These loans can help build your initial capital when you don’t have much experience or brand power. Once you start gaining traction, you can develop a more detailed business plan with a financial adviser to show lenders you’re serious about staying around for the long haul. Ultimately, the more work you put into your application, the better your chances of approval for financing.
Amazon’s top sellers offer a number of strategies that can help you take your business to the next level:
Like any business, selling on Amazon takes careful forethought and planning. You may be tempted to sign the first loan you’re offered. But building a business plan and considering your options first is key to finding the best rates and terms you’re eligible for.
After all, knowing how to take today’s business into tomorrow can help you narrow down the right financing to meet your goals.
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