- Lena R. Liberman
- On October 31, 2019
This guest post comes from Alexander Sklar, Head of Business Development & Strategic Partnerships at Payability.
Note: This post is intended to introduce some of the most common eCommerce financing options and how they work. Payability and Seller Labs do not claim to give financial advice and always recommend that you conduct your own research before making a decision for your business.
If you’re looking to grow your Amazon business, be prepared to invest. Whether it’s a new product or more inventory, a marketing campaign, or a warehouse, unless you have a hefty savings account, you’re going to need outside funding for the growth investment. To help Amazon sellers better understand the funding landscape, we’ve put together a quick primer so you can make the right financing decisions for your business and its growth.
Amazon Seller Funding Options
If you’ve done any research on small business financing, you know that the landscape is vast. There are many funding types and providers, each with its own terms, qualifications, and processes. Today, we’re going to focus on Amazon Lending, SBA loans, and Payability, and what they offer Amazon sellers.
1. Amazon Lending: An invitation-only, short-term loan offered by Amazon Capital Services, Inc.
- Loan Amounts and Terms: $1,000–$800,000 for up to 12 months.
- Application Process: You cannot apply to Amazon Lending. Instead, you will get an invitation in Seller Central if you qualify.
- Qualifications: You should expect to see an offer if you have great seller metrics, strong selling velocity, and solid inventory management history.
- Approval and Funding Processes: Approvals are instant and require no paperwork. If you’re approved, you can get funds in as fast as 24 hours. Remember, Amazon has already qualified you behind the scenes.
- Rates and Repayment: Rates are not publicly available, but many sellers report Annual Percentage Rates (APRs) in the 6–16% range. In addition, Amazon claims to have rates lower than most business credit cards and Merchant Cash Advances (MCAs). Payments are automatically deducted from your Amazon account on a monthly basis (the amount depends on your specific loan terms, but it’s always a fixed percentage of gross sales).
- Use Cases: Your Amazon Lending loan can only be used for inventory.
- When to Use It: If you have an offer in Seller Central and need funds for inventory investments only.
2. SBA Loans: Small business loans issued by a bank, credit union, or other specialized lender and guaranteed by the Small Business Administration. The SBA will guarantee 75-85% of a loan and it offers different loan types. Today we’ll look at the flagship program known as 7(a) Loan Program.
- Loan Amounts and Terms: 7(a) term loans go up to $5 million (The organization also offers SBA Express Loans up to $350,000 and Microloans up to $50,000). Terms range from 7–25 years.
- Application Process: Refer to the loan application checklist from the SBA website, then use the online Lender Match tool to find approved lenders. You’ll need to compile a lot of paperwork, including personal and business financial statements, tax returns, business licenses, loan histories, and more. Depending on your needs, you could apply for an SBA loan online through SmartBiz. Either way, be prepared with the necessary paperwork and expect a credit check.
- Qualifications: According to the SBA website, businesses must operate for profit, be U.S.-based, have reasonable owner equity, use alternative financial resources like personal assets prior to applying, and not fall into its list of ineligible categories.
- Approval and Funding Processes: Remember all of that paperwork? Right. Getting approvals and funding can take weeks or months.
- Rates and Repayment: Because loans are guaranteed by the SBA, interest rates are among the lowest for small businesses. Depending on your specific terms, rates range from 7.50%–10.00% and most SBA lenders charge a guarantor fee.
- Use Cases: Working capital, expansion, equipment purchases, inventory.
- When to Use It: If you have a large, established business, don’t have an immediate need for cash, and are confident you can manage a years-long repayment schedule.
3. Payability: A financing company designed specifically for marketplace sellers who need immediate cash. With Instant Advance, Payability pays you a certain amount of your future sales up front and at a discount. With Instant Access, Payability pays you your Amazon income one business day after making a sale. With the Seller Card, you can access your income 24/7/365, on-the-go, and on weekends and holidays. Payability works seamlessly alongside Amazon Loans and other forms of financing.
- Loan Amounts and Terms: Payability is not a loan company, so funding amounts depend on how much money your business makes. For Instant Advance, you can get up to $250,000 as a lump sum. With Instant Access, you’ll have next-day access to 80% of your closing Amazon balance (the rest is kept on hold to cover any necessary returns or chargebacks and released to you when Amazon releases your payment).
- Application Process: Easy online application requiring no paperwork, no credit checks, no tax documents, and no bank statements. 24 hour approvals based on your account health and sales performance.
- Qualifications: For Instant Advance, qualifications include 9+ months of selling history and average monthly sales of $10,000 or more. For Instant Access, you must have 3+ months of selling history and average monthly sales of $2,000 or more.
- Approval and Funding Processes: Approvals and funding in as fast as 24 hours.
- Rates and Repayment: For Instant Advance, rates start at 0.50% per week for a maximum of 20 weeks with no origination fees. For Instant Access, rates include a fixed flat fee of 1–2%. Payability offers early payment and customer loyalty benefits, and large sellers may qualify for lower fees.
- Use cases: Inventory, general working capital.
- When to Use It: If you’re looking to get paid daily and in real-time and/or want to boost cash flow to invest in inventory, take advantage of big opportunities, or increase working capital.
Other Funding Options for Amazon Sellers
Above are just three of the many types of lending available. Other Amazon seller funding options include bank loans and lines of credit, online business loans, credit cards, personal savings, borrowing from friends or family, or crowdsourcing donors to back your endeavor.
Legacy banks may offer loans with as low as 6% APR, but only a handful of very established businesses actually qualify for these. While secured loans may have more competitive rates, they can be riskier as they often require you to put up collateral and give a personal guarantee. Unsecured financing tends to be more expensive but only requires a performance guarantee and not a personal guarantee of collateral.
Making the Right Financing Decision to Grow Your eCommerce Business
Now that you know the funding options available to Amazon sellers, start smart! Begin your business’s growth journey by asking yourself these questions:
- What do you need funds for?
- How soon do you need funding?
- How much are you willing to spend in interest and/or fees?
- What lending do you qualify for?
- Are you willing to put up collateral?
- How long do you expect to take to pay the loan (and interest) back?
About the author: At Payability, Alex focuses on developing strategic partnerships with marketplaces, solution providers, and other industry partners to expand Payability’s financing and accelerated payout solutions. Alex has over 10+ years experience in finance and accounting and 6+ years in financial technology and product development. Outside of work, Alex enjoys fishing and coaching lacrosse.