Amazon offers almost everything you need for your business to succeed. They don’t only sell office supplies, but also specialized equipment. As one of the world’s largest retail companies, they are very successful.
But if you sell products on Amazon, you could qualify for their loan options with Amazon Lending. Here we help you understand what it is and how it can help your business.
So What Is Amazon Lending?
Amazon Lending provides a financial option for businesses registered to sell on Amazon to fund their inventory purchasing.
Based on a variety of internally tracked information, Amazon prequalifies and invites sellers to apply for the financial program. If your business is eligible, you will see a message on your Sellers account homepage.
Amazon Lending Information
The loans from Amazon are short-term loans with a capped repayment period of one year. When Amazon makes your company an offer, it is up to $750 000. They do offer the company a few options for terms and associated rates.
These rates range from 6 – 14%, which is lower than most credit cards. So sellers on Amazon have the option to accept any amount and interest rates that suit the companies needs.
The funds are deposited into the business’s Amazon account within 24 hours and can be withdrawn and used only for purchasing inventory that will be sold on Amazon.
The repayment method is with fixed monthly payments which are automatically taken from the business Amazon account. Amazon does not charge origination or closing fees.
Related: Ask yourself these Key Questions before getting a business loan |
How Do I Qualify For An Amazon Loan?
Amazon monitors all aspects of your business activity. From Sales history, customer service ratings, or inventory maintenance to paying your Amazon Seller Repay fees.
Correctly managing your account and practicing good business practices, as well as having a strong product category, are ways that can help boost your credentials for the loan.
The Benefits Of Amazon Lending
1. Profile assessment
The main benefit of a loan from Amazon is that they only really care about how well you perform on the Amazon platform. They are not interested in your credit score or if you were rejected for another loan.
These aspects also do not affect the interest rates offered to you. Therefore you could get a reasonably high loan amount with low-interest rates.
2. Application effort
Because they pre-qualify your business, you don’t have to fill in long application forms and wait forever and a day for approval or rejection. This saves you time and energy so you can focus on your business and let Amazon do the heavy lifting. Amazon already has your information on file, so all you need to do is keep that updated.
3. Fees
There are no extra, complicated fees with Amazon. Not having to pay early prepayment penalties or closing fees can add up to be a big saving. And if you are disciplined with your loan, getting another offer will be easier. They may even offer you a higher amount at a lower interest rate.
The Downsides Of Amazon Lending
1. Not for startups
The fact that your business needs to have a track record of selling on Amazon can be a major setback for companies that need a startup loan.
If you need a loan to purchase your first inventory, you will likely not be offered a loan. This could be a major setback for startups and you must assess alternative ways to fund your starting business.
2. Use of Funds
But only being able to use the funds for building or restocking inventory of your Amazon products is the main limitation of this loan. If you do not add any inventory to your account after accepting the loan you are in violation of the agreement and Amazon can recall the loan.
Adding more stock does not automatically increase sales, so you will still need to invest in marketing and Ads to increase sales volumes.
3. Fixed monthly repayment plan
Also, keep in mind that you will have a fixed monthly repayment plan for the loan. So if you are making a lot of sales, you should easily be able to afford the extra expense at the end of the month.
With Amazon already taking a cut of your sales, having an Amazon loan will take a bigger percentage of your profits. If you are short on sales, you will still have to pay off the loan at the end of the month.
There are no negotiations or adjustments. So keep an eye on your account balance to ensure there are enough funds.
Related: You can read more about paying off your loan without too much hassle by clicking here |
This Credit Calculator will help you determine your monthly “Payment Amount”: |
4. Loan amount
Another downside of Amazon Lending is not being able to request only what you need. You are limited to the options that they provide you.
This could be beyond what your company is making to be able to afford. So, assess the loan completely and do the necessary calculations in order to prevent mispayment of the loan.
Use this Credit Calculator to determine how much “Credit Amount” you can afford based on your monthly payments and the interest rate offered: |
5. Inventory as collateral
It is important to remember that the loans use your inventory as collateral. This means that if you default on your loan repayment, Amazon will hold your inventory until you pay off the amount in arrears.
If they deem fit, they can also sell these products to pay off the debt. Because they are holding your inventory, you lose your ability to make the necessary sales to pay off the loan.
Related: You can read more about collateral by clicking here |
6. No impact on credit score
Finally, Amazon does not report any of your loans to the credit agency. Although you are able to get Amazon Lending regardless of your credit score, having this loan will not affect your future credit score.
This could be a hindrance in future attempts at getting a loan from another lending agency and you will still have to start off with a low or no credit score.
Related: You can read more about how lenders assess your credit profile by clicking here |
Deciding If It Is Right For You
Amazon Lending allows your business to get an appropriate short-term loan at reasonable interest rates for putting products on the shelf for you to sell. But if you need to grow your business, increasing inventory is not the only aspect. You may need to increase staff numbers or purchase or repair equipment.
Remember that you need to have a fully operational business to be offered this loan. So it is best to assess your business’s needs in order to get the correct funding before you need it and not after it is too late. Getting a loan from Amazon Lending is an easy and effective way of beefing up your business’s inventory.
But it does not guarantee an increase in sales. You must manage your Amazon Seller’s account to ensure there is the correct amount in each month to repay off the loan regardless of how sales are going.
Using a lending agency might cost you more in the short term. But they could offer personalized and more appropriate lending alternatives that will benefit your credit score. Which will benefit you in the long term and provide you with more lending (and cheaper) options in the future.
How To Deal With A Business Loan
Congratulations if you have successfully secured a business loan. You now have the funding to move your business forward or settle your financial woes. But, taking out a loan does not end there. Remember, that money is meant to be paid back.
If you mess up, that could adversely affect your business and your ability to secure more financing in the future. So now that you have the business loan in your hands or your account, it’s time to know how to deal with a business loan properly.
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