Taking loans for the business is a common thing among sellers. A large chunk of online sellers takes a loan to expand their business. Amazon is the largest contributor to streamline online business and offer to finance your Amazon FBA business. Apart from Amazon, the number of financing platforms offers to fund your business.
As we are stepping in the Q4 of 2020, small scale sellers are struggling to invest extra capital in boosting sales. It’s quite frustrating for the sellers that they have a popular product but cannot enough inventory to move on. For such sellers, different funding options are available. Some of them are explained for the US marketplace:
What you should consider before applying for funding?
You should consider getting funding only if you have steady revenue. Doing otherwise could trouble you. And, when you cannot pay back the loan, your business will ruin. With steady revenue, you shouldn’t wait too long; otherwise, you will miss the golden opportunity for business growth.
Before preparation into paperwork, clear yourself first why you are borrowing money, and when exactly you can pay it back. This way, you can map your business plan and understand its cost, consider your credit score and risk level. Analyze your cash flow and check your finances so you can understand what amount you need and feasible for you to return.
If you are selling on Amazon for more than one year and earning decently, you may be eligible for a direct short-term loan from Amazon. You can avail the offer of $1,000 to $750,000 to return the payment within 12 months. The loan amount depends on how well your seller central is. Amazon has not disclosed what interest rate they charge, but those who availed this loan said that it is 6% to 16%.
Remember: these loans are not for all markets but the selected ones. The utilization of loans is restricting to Amazon only, or you can purchase new inventory. If you get the loan from Amazon, you will get paid the interest and repayments directly from your marketplace earnings.
Getting a loan from Amazon is quite different from traditional lending services. Banks often don’t know how to deal with an online business to lend money. The average loan amount in conventional banks is over $100,000, which may be more than your requirements. Still, you find it right for you, the various bank offers a loan with lower interests. Traditional bank loans are based on collateral. It requires a value that is equal or greater of the loan you are taking.
Lines of Credit
A business line of credit is similar to a credit card where you have a flexible revolving credit line that can be used to purchase a thing or withdraw money. You can avail this easily if you can able to show that you have been in business for a year or your annual business revenue is at least $50,000. The good thing about this loan is you can also use it for anything rather only for Amazon in contrast to Amazon loan. The loan amount under Lines of Credit varies from $5,000 to $5 million. Before taking it, ask the loaner to inform you their monthly or annual fee, interest rate and mode of repayments.
Business Credit Cards
Business credit cards are the easy and fastest way to fund your Amazon FBA business, only if you assure that you can pay off your credit card balance every month. It is the most suitable loan options if you need a small amount of money over a more extended period.
Merchant Cash Advances
Merchant Case Advance is another immediate funding options for your Amazon FBA business. It has no collateral arrangement, and you can only apply online. This service does not consider your credit score alone as an assessment factor; if you have a lower credit score, it won’t make your ineligible.
You should be cautious of higher interest rates in this service, always ask for fees. The loan calculation based on your credit card sales and you repay the loan with the inclusion of fixed fee and percentage on your sales. Approximate loan amounts are $2,500 to $250,000.
To get the Peer-to-peer loan, you will create your profile on the P2P website, where investors review your profile to consider for funding. This website may ask your credit score and debt-to-income ratio and some other relevant information too.
Clearly state your purpose as much as possible that increases your chances of being awarded. If you are awarded loan then read the terms and rates of the loan carefully. The whole process may take a few weeks.
Mind it: you are bound to follow the Terms of P2P website’s rules and pay their fee because they are working as a facilitator.
Business Term Loan
Once you have created your Amazon accounts, many banks and credit unions offer term loans. The loan amounts up to $5 million, but it depends on your annual revenue and credit history. You will be charged interest and fees to pay fixed monthly repayments over a period of 5 to 20 years.
If you are a newbie in the Amazon business, a personal loan may help you out the most. You can get from $2,000 to $50,000, which is enough to start. It requires a good personal credit score and decent income statement of the seller. Moreover, Annual percentage rates typically range from 5% to 36%. The only challenge is the higher interest rate and monthly fee installments over a period of 2 to 7 years.
It is not advisable to invest your personal savings in the business, but it may help you when other options don’t work. The only good thing about personal savings is that you don’t need to prove your credit score or other qualification. If you have enough money as personal savings, you can support your inventory purchasing. Simple! Learn about Amazon FBA PL – A Journey Towards Million Dollar Flip-Able Asset
Seller Funding is a funding solution tool based on an artificial intelligence algorithm to analyze your FBA store. It evaluates your performance metrics and offers multiple loan packages Up to $1,000,000.
Within no time, you can check whether you are eligible or not. If you qualify, you will get the amount within a few days. The good thing about this service is you can get another loan after paying 50% of your current mortgage.
Beware: it may not trap you in debt. The guarantees to get a loan involves your seller account along with your credit score and overall health your business.
BitX Funding is a digital lending marketplace that offers fast business loans. It is a viable option for sellers whose assets and traditional lenders do not recognize growth potential. Alike, various digital lending marketplaces are also working.
What do you need to do if you are a newbie in the Amazon business and ineligible for the above criteria?
Let me remind you. Amazon Business is a global business hub: it takes extensive planning and research to take off your business.
If you have just started the Amazon business and have not enough money, it is advisable to avoid jumping in to lend money. Many sellers start their Amazon business by bootstrapping and turns their new business into a healthy business. Why don’t you do this, do you? You can explore multiple ways to start with no or lower investment; one of my favorite ways is an upfront investment, selling used books. As long as your business grows, you can explore the outside funding options.
Financing your Amazon FBA business is smooth sailing, but you do need to extra cautious about interest rates and other fees involved. Your current business conditions determine which option is best suited.
The token of advice is always to plan your business goals and understand what you need to get your business out of the crisis.