Business loans for Amazon sellers

Looking to take your Amazon business to the next level? Business loans for Amazon sellers typically come from online lenders, and help you get the funds you need to invest in working capital or the marketing of your brand. Plus, 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.

Can I get a loan to start an Amazon business?

If you have an existing business and are looking to expand it to Amazon, you can get a business loan from banks, credit unions or online lenders as long as you meet their eligibility requirements. Lenders typically ask for proof that a company is performing well and is able to match expectations. You can do this by showing them your revenue statements, cash flow projections, business plan, tax returns and personal credit score.

If you are looking to start an Amazon business from scratch, you may not have all this information to get approved for a loan, but you do have options for starting a business in Canada.

6 loan options available for Amazon sellers

When you’re running a business through the Amazon Marketplace, you may find it difficult to get a traditional bank loan. Here are some financing alternatives that can help you shore up your cash flow or reach more customers.

1. Amazon Lending

If you’re a seller who’s been with Amazon for at least a year and you have decent metrics, you may receive an offer from Amazon for a direct short-term loan to use toward purchasing new inventory. Amounts typically range from $1,000 to $750,000 with terms of up to 12 months, depending on your seller account. Even though Amazon doesn’t advertise the terms you might be offered, former borrowers cite interest rates of around 16%.

A major downside of Amazon Lending is that your funds can only be used for your Amazon business. If you need capital to diversify your online store outside of the Amazon Marketplace, you’ll have to look elsewhere.

How sellers get a loan on Amazon

Amazon Lending provides financing options that can help small businesses grow on Amazon, and signing up for the service is simple after establishing your seller account.

• Sign into Seller Central, the interface that merchants use to manage their products and sales.
• If your business is eligible for Amazon Lending, a message will appear on your home page.
• Select the financing option that is best for you, up to the amount that you’re eligible to receive.
• If approved, you should see the funds within 5 business days.

Other options will, of course, require different steps, but by going with Amazon Lending you can keep your loan details and business details in the same place.

2. Business line of credit

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. You can use this money for almost any purpose – it’s not limited to your online Amazon marketplace, like with Amazon Lending. Since amounts range from $5,000 to more than $1.25 million, a credit line can be a handy tool to pay for marketing services or hire seasonal help to fulfill your orders. Some providers also charge a monthly or annual fee, in addition to charging interest on the funds you withdraw.

3. Merchant cash advance

Because Amazon businesses bring in the majority of their revenue through credit card sales, a merchant cash advance could help if you’re having cash flow 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 $500 to $500,000 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 is making only a few large sales each month.

4. Business term loan

If you need a large influx of capital, 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, which typically has less stringent eligibility criteria. Amounts range from $1,000 to more than $1.25 million, depending on your annual revenue and credit history. Most lenders charge interest plus fees, which you pay back in fixed monthly repayments – usually between 3 months and 10-plus years. Because of the large variety of business loans out there, start your research by pinpointing exactly what you need the money for, and create a business plan to understand costs and goals.

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5. Peer-to-peer business loan

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 – instead, individual investors step in to provide the funds. These loans can be expensive, with higher than normal interest rates and fees paid back in monthly installments. Interest rates can reach as low as 4.96%, depending on the lender and the amount of money required. Loan amounts can also range from as little as $1,000 to $500,000. Since P2P providers don’t have the same return on investment as direct lenders, they typically charge higher fees.

6. Personal loan

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 amounts from $1,000 to $35,000, which can be useful if you’re looking to buy inventory or hire marketing professionals. Rather than relying on your business’s credit score, your personal score is used for the personal loan with APRs ranging from 6% to 47%. Like business term loans, you’re charged interest and fees that you pay back in monthly installments from 2 to 5 years, with some extending longer.

How to decide which Amazon business loan offer is best for you

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 ecommerce 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 this puts your business at risk if you default on your payments.

What common business expenses can I cover with financing?

Ecommerce 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. Plus, when you’re working through the Amazon Marketplace, you’ll also pay fees for using Amazon’s services.

• Marketing. Eager to get more customers through Amazon? Dedicating a portion of your budget to website design, Facebook and email marketing can be effective ways to attract more business.
• Inventory. When you’re selling goods on Amazon and other ecommerce sites, restocking inventory can be the bulk of your expenses.
• Fulfillment by Amazon costs. If your orders are processed through Fulfillment by Amazon (FBA), you’ll need to account for storage and shipping costs on top of Amazon’s usual fees.
• Selling plan fee. Amazon sellers pay $29.99 a month (accurate as of August 2019) as a professional selling plan fee. Nearly $360 over the course of a year can be pricey if you’re just starting out. A small line of credit or personal loan can cover this cost while you build your business.
• Referral fees. Amazon charges variable referral fees for items in different categories. If you need extra capital before the rest of your current inventory has sold, a small loan may help cover related costs.

What will I need to apply?

No matter the type of financing you’re applying for, you’ll need to provide basic documentation that usually includes:

• Personal details and contact information.
• Business and personal tax returns.
• Business and personal bank statements.
• Profit and loss statements.
• A detailed business plan.
• Financial records.

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 any blemishes on your credit report.

What challenges might I face getting financing as an Amazon seller?

You might find it hard to get financing to start or build out your business through traditional lenders. With so many small online businesses, banks often shy away from offering financing unless you have a proven track record.

Many non-traditional 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 growing your business for the long term. Ultimately, the more work you put into your application, the better your chances of approval for financing.

7 ways to become a successful Amazon seller

Amazon’s top sellers offer a number of strategies that can help you take your business to the next level:

• Research your niche. Whether you sell products across categories or focus solely on a single niche, get to know your market inside and out. Learn how others advertise and price similar items to find a competitive edge.
• Build a brand. Amazon has thousands of sellers all vying for customers’ attention. Set yourself apart with branding that highlights what makes you unique — or what you offer that others don’t.
• Market your page. Even if you aren’t running a dedicated website aside from Amazon, it doesn’t mean you should skip out on marketing. Reach out through forums and social media to get people familiar with your products.
• Encourage reviews. Reviews can be crucial to an Amazon seller, especially if you hope to qualify for Amazon Lending down the road. Solid customer service may give you an advantage over your competition.
• Offer sales and promotions. Discounts and sales around the holidays can help build clientele and increase your sales. Plus, that extra revenue can offset cashflow lulls in the off-season.
• Review your metrics. Understanding the data behind your business — sales, product views and returns — can help you form a strategy to improve numbers in the future.
• Use Fulfillment by Amazon. FBA is often cited as a vital tool in stepping up your Amazon business. Although it cuts into your revenue slightly, not having to package and fulfill every purchase generally saves time — and money — in the long run. It can be especially helpful if you’re selling via other platforms.

Bottom line

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. If successful, securing an Amazon business loan is a great way to generate capital quickly that can assist in marketing, development and shipping costs.

Frequently asked questions

• How can I be sure my Amazon business is ready for a loan?

  Consider both your current financial situation and your goals. Every business runs differently, but capital can be a valuable way to invest in the future.

  Before you start your search for a loan, talk with an accountant or business professional to create a solid business plan. Some questions to ask yourself include:

  • Where do I see my business in the next few years?
  • What financing option would be best suited for my business and current financial situation?
  • What is the purpose of this loan?
  • How much money will I need to borrow?
  • What are my payment options?
  • How quickly can I pay back my debt?

• Should I use Fulfillment by Amazon?

  It depends on your business. Many successful entrepreneurs say that FBA saved their business time, and ultimately money. But if you’re small and don’t yet have a lot of customers, it may be more cost effective to fulfill orders by yourself or with a small team.

  Consider the size of your business and the number of packages you send regularly. If you need to scale up your business, then FBA might be a solid choice for you.

• Does Amazon charge a per-item fee for professional sellers?

  No. If you have a professional plan with Amazon, you won’t have to pay a per-item fee when you sell over the Amazon Marketplace.