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We all know Amazon as an online retail and business powerhouse globally. However, despite its e-commerce operations, Amazon started as an online bookselling company before becoming one of the world’s most-known online e-commerce platforms. It also engages in cloud services, online advertisements, and digital streaming.
Did you know that Amazon has 1.9 million selling partners worldwide? As an e-commerce platform, Amazon sells basically anything you can think of—from the most luxurious toilet to the hottest hot sauces you can find on land. This is why many businesses—corporations, partnerships, or individuals—utilize Amazon to widen their market reach and expand business operations by gathering more capital. There have been many online merchants competing with Amazon, but none are getting close to its market share.
This section will discuss Amazon Business Financing, how it helps businesses, and the tips and tricks to get approved and use your financing proceeds wisely.
What is Amazon Business Financing, and when should I consider it?
Amazon Business Financing is a direct lending scheme extended by Amazon to the sellers on its platform. Amazon directly extends loans to its sellers through various loan portfolios at rates typically lesser than a credit card or bank loan and through a simpler process.
One downside of Amazon Business Financing is that it is invite-only. This means that not every business on Amazon is qualified for the loan. Amazon gets to decide who best fits these benefits, and not all sellers can apply for this loan, no matter how high your sales are.
On the other hand, the upside of Amazon Business Financing comes from a very simplified application process (for eligible accounts) and enjoys interest rates at lesser than commercial bank rates. Traditional banks sometimes hesitate to extend loans to small online sellers, especially with the lack of collateral. Online sellers eventually lose hope of securing a bank loan because of a rigorous credit investigation process and requirements.
Amazon Business Financing is the light at the end of the tunnel for these small online sellers to secure working capital and scale successfully online, especially for those just starting. In fact, according to a study by Delloite, 92 percent of CFOs find debt attractive to leverage and maximize cash flow.
“Businesses are vulnerable to losses and eventual bankruptcy and closure mainly because they don’t know how to manage their finances,” says Jarret Austin, Owner of Bankruptcy Canada Inc., “Managing your cash flow, gaining more capital either through investments or debt, is very important in maintaining the continuity of a business. You can’t work around your business through profits alone, which you won’t make until months or even years after you start your business.” he continues.
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Tips and tricks for an Amazon Business Loan
Although Amazon has not disclosed its criteria on who qualifies for a business loan, here are some helpful tips and tricks you might want to keep in mind:
Get consistent positive reviews
Like any lending institution, positive reviews and customer feedback are essential, especially to Amazon, which has access to customer reviews on its platform.
Getting consistent positive reviews tells Amazon that your products and services are selling well and in demand and that you put out quality products that satisfy your customers. Good product reviews translate to sales performance and potential, assuring Amazon that extending you a loan will result in successful business operations and repayment of debt and interest.
Nate Tsang, Founder & CEO of WallStreetZen, says, “Banks and other lending institutions care more for reputation than we might think. This is why banks do CI or credit investigations—they gauge whether a borrower has the capacity to pay, the capacity to maximize and profit off the borrowed money, and whether the money is used for what it is intended.”
Avoid copyright complaints
In Amazon, a seller can apply for intellectual property rights protection under the Amazon Brand Registry for the photos and texts used in the platform. As a basic rule on retail, copyright infringement is punishable by state and federal laws and can lead to severe consequences.
This mostly happens to third-party resellers who copy-paste text or download and re-upload images from the original seller’s Amazon page. A track record on copyright complaints is a red flag for consumers and lending institutions alike. In this case, it would be better for third-party resellers to create product descriptions and upload original photos to avoid copyright infringement.
According to Ben Michael, Practicing Lawyer and Founder of Michael and Associates, “The Copyright Act of 1976 is a federal law that protects the unauthorized copying of a protected body of work. This applies to any intellectual property content, be it music, books, videos, photos, or texts. Amazon product descriptions are not an exception.”
Choose the lending line that best suits your business
Amazon Business Financing offers a variety of loan portfolios through Seller Central or third parties, as follows:
Term Loan
A fixed interest rate gives a lump-sum cash out with a specified payback period. Payback is done monthly with corresponding capital and interest based on computation. Term Loans can be availed directly through Amazon Lending or Lendistry, an Amazon Community Lending.
Interest Only Loan
As the word suggests, IOL or interest-only loan gives borrowers the flexibility of paying “interest only” for a lower rate for the first three months. During the subsequent months, payment for capital plus interest will apply.
Business Line of Credit
The Amazon Business Line of Credit can be availed through Amazon Lending in collaboration with Marcus by Goldman Sachs.
A business line of credit will give a borrower a dedicated account management team to set up and manage your credit line, including inventory management, to secure sufficient stock levels. In this line of credit, borrowers can withdraw a specific amount, and interest only accrues based on the drawn balance or the funds borrowed. According to Business Insider, this line of credit carries a fixed annual interest of 6.99% to 20.99% up to $1,000,000.
According to Andrew Gonzales, President of Business Loans, “A business line of credit is one of the most attractive forms of business loans as it allows you access to short-term funding in case of emergencies like payroll payments or sudden inventory purchases.”
Merchant Cash Advance
The difference of MCA, or Merchant Cash Advance, from the rest of Amazon’s loan portfolios, is that MCA doesn’t have an interest. Instead of interest, you must pay a fixed capital, usually equal to a portion of a seller’s future sales. This program is one of Amazon’s most recent lending partnerships in November 2022, and eligible borrowers can get $500 up to $10 million in MCA.
Repayment terms are determined through a payment schedule based on a borrower's Gross Merchandise Sales.
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Use loan proceeds wisely.
The best tip and trick after availing the Amazon Business Financing is to use your loan proceeds wisely.
Ron Apke, COO of Land Investing Online, explains, “The only way most businesses (and individuals) cannot benefit from loans is when proceeds aren’t fully utilized to their best capacity. The reason there is “bad” debt and “good” debt is not because of the debt itself, but because of the way people handle that debt.”
This means that the loan process should and must be used for income-generating activities and improvement of business efficiency where you can generate more profits. Many people use debt to pay another debt, which often results in a snowball of debt on your doorstep and a steep increase in interest accrued.
Amazon Business Financing is an excellent platform to generate additional funds in very minimal steps in a short period, without the hassle of going back and forth to the bank with tons of requirements. Amazon Lending aims to support small to medium sizes businesses to succeed on their platform as they continue to innovate and add loan portfolios.
