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What is Amazon Lending and Should You Use It?

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Phone: 203-610-0235
Mon - Fri : 09:00 - 17:00
What is Amazon Lending and Should You Use It?

Amazon is into a lot of businesses from their humble start in books to media, electronics, apparel, toys and so much more. They even have Amazon Lending, which offers small business loans to qualified sellers. You can use a loan like this to set your business expansion plans in motion. Amazon Lending is not for everyone, however. You need to find out if it’s the right way to go for your business, and if you have the sales history needed to be considered for a loan.

With over 400 billion dollars in sales since it began in 1995, the company is in a great position to push Amazon Lending forward. It has already lent out about a billion in loans to Amazon merchants in just the last year. Over 20,000 on the US, Japan and UK marketplaces have benefited from this financing option. Amazon greatly benefits as well, of course. It earns interest on loans and stands to earn more as businesses use the money to sell more on the marketplace.

Amazon Lending Basics

Qualified sellers can borrow from 1,000 to 800,000 US dollars for up to 12 months through Amazon Lending. This gives these sellers the opportunity to expand their businesses to reach more customers in over 130 countries. Amazon is in a good position to make loans to smaller businesses. They hold the data necessary to decide who has the best chance of paying it back, on top of having to deal with less strict regulations than banks do.

Amazon Lending was created to give Amazon sellers an easier and faster option for getting loans. Traditionally, it is quite difficult to get a business loan. Amazon knows how valuable a small loan can be to a growing business. It has therefore made Amazon Lending available so that sellers can boost operations and expand their inventory at critical points in business growth. The wait and the technicalities involved in loaning from banks and other lenders are often too much to make it worthwhile for small businesses. These traditional sources are also hesitant to lend a hand where smaller businesses are concerned because of how the 2008 financial crisis played out.

Who Can Leverage Amazon Lending?

Amazon Lending is open exclusively to sellers on the Amazon marketplace. Moreover, not every seller can apply for a loan. Amazon keeps this privilege for the select few, and it is by invitation only. If your track record on Amazon is clean, Amazon Lending may reach out to you to offer you a specific loan amount. Your eligibility for a loan through Amazon Lending is determined by a set of algorithms that will evaluate your selling history.

How Does Amazon Lending Work?

Accepting and repaying a loan from Amazon is a very simple process. Here are the basic steps and the benefits of borrowing from Amazon:

Lower Fees and Interest

A loan from Amazon is like a cash advance, but with lower interest rates. The exact rates are undisclosed, but are also lower that using credit cards.

There are no additional fees associated with Amazon Lending, such as origination, application, and closing fees, and prepayment penalties, among others.

Just What You Need

Sellers are offered specific loan amounts, but they don’t have to borrow as much as they are offered. It is possible to take out only a portion of what is offered.

Simple Collateral

Amazon simply accepts a seller’s FBA inventory as collateral when a loan is accepted. If you can’t pay, Amazon can hold your inventory or take it and sell it themselves to get their money back. If you are not an FBA seller, then your earnings will go directly to Amazon in case of non-repayment.

Quick Release

An accepted Amazon Lending offer can be released to the seller’s account as soon as the following day, but not more than a week. This is much faster than the traditional options. This is in large part because Amazon Lending has already screened the merchants to whom loans are offered.

Easier Repayment

Merchants who accept the loans will have to pay them back within a few months or up to a year by giving Amazon a cut of their sales. These payments are fixed monthly amounts that Amazon takes directly from the seller’s account. All you need to worry about with this scheme is making enough sales to cover your loan repayments.

Is Amazon Lending Right for You?

Before you jump at the chance to grab an Amazon Lending offer, consider the following:

  • Amazon wants you tied in – Amazon is a business, and it is lending you money so that you can sell more on Amazon and get them a bigger cut. This is, of course, on top of your interest payments. An illustration of this is how sellers must use the loan amount for inventory expansion, and only within the marketplace. As mentioned above, Amazon is looking to gain more by encouraging more sales on Amazon. It is therefore not an option to use the money elsewhere.
  • You pay no matter how much you make – It may be easier to just give Amazon a fixed amount every month, but only if you are consistently doing well. Paying a fixed fee instead of a percentage means that you pay the same amount even if you’ve had a bad month.

 

Amazon Lending is one of many options for business owners who need a small capital boost. If you are mainly an Amazon seller and already dependent on the marketplace, you may find this additional tie too much to bear. You may also find that the Amazon Lending just makes good business sense. If inventory is what is keeping you from growing, this loan may certainly be exactly what you need to build your business.

 

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