Many business owners have begun considering Amazon’s business loans to grown their e-commerce business. Especially for Amazon sellers, the lending program is extremely advantageous. These financing options allow you to borrow up to $750,000 with fees lower than business credit cards. Depending on your eligibility, it can even be an extremely smooth application process. However, there are still several factors you must consider before applying for a business loan with Amazon. To learn whether or not Amazon business loans are the best decision for your startup, continue reading this post.
Amazon’s business loans have extremely restricted eligibility for borrowers. Often, these restrictions are more stringent than traditional business loan requirements. These financing options are only available to sellers on Amazon. In order to be accepted, you must have a selling history of at least one year. In that past year, you must have earned a minimum of $10,000 in revenues. If you meet the financial requirements, your customer service metrics are then measured. You cannot have any significant customer complaints within the past six months. Also, you cannot have any complaints for trademark or copyright infringements. Throughout your selling history, all products must have remained compliant with Amazon’s guides and requirements. However, since Amazon conducts all its research through Amazon, they often do not check your credit score or bank statements. In considering if Amazon loans are the best option for your startup, ensure that you are eligible under their requirements.
In exchange for low transaction fees and high borrowing amounts, all Amazon financing options are collateralized. On Amazon however, loans are collateralized using your inventory. Therefore, your inventory will be held if you default on your payments. However, if you are unable to currently make payments, restricted inventory will not help you earn revenues quickly. If you are unable to repay owed amounts by specific deadlines, Amazon will sell your inventory to recoup their investment. If you conduct order fulfillment yourself, Amazon will take payments directly from your ongoing sales proceeds. Beware that all Amazon financing options are collateralized before obtaining a business loan for your startup.
Business loans from Amazon require fixed deductions. Being a seller on Amazon, you already pay a transactional fee on every product you sell. In addition to this, you are required to pay an annual seller membership fee. Accepting an Amazon loan only cuts into your sales revenues even more. Monthly payments are directly and automatically deducted from your sellers account. Even if your sales and total revenue is down, the same payments are processed monthly. Therefore, the core financial aspects of your business will be impacted when your account balance cannot meet monthly payments. Consider how your startup business will be effected by the fixed deductions contingent with Amazon lending options.
Limited Use Of Funds
Amazon’s lending options allow borrowers limited uses of funds. Typical business loans can be used to improve any aspect of your business. For example, they can help you purchase new office space, develop new products, or purchase new equipment. Amazon loans limit your uses to growing inventory and restocking products. Moreover, you can only grow the inventory and purchase the products that you will ultimately sell on Amazon. Simply restocking inventory does not provide your startup the additional marketing, support, and development needed to actually sell products. Because of this, a number of loan recipients have ended up with overwhelming amounts of inventory with very little sales. Simply put, loans only extend to you Amazon e-commerce business. Consider how your startup business will be impacted by Amazon loans limited uses of funds.
High Monthly Payments
Amazon business loans often impose high monthly payments are their recipients. Lending options allow you to borrow as much as $750,000 on a single loan. However, all loans require the same 12 month repayment deadline no matter the amount. Therefore, you may be unable to make payments even if you are eligible for financing and have the proper strategic planning. Borrowers that require additional funding may have to apply and be accepted for a second loan at the end of the initial period. It is crucial to ensure that making monthly payments does not restrict your business activities. The purpose of obtaining loans is to focus on your daily operations and growing your business. Monthly payments that constrain your operations prohibit you from doing so. Be aware that Amazon’s high monthly payments have a tendency to restrict your business activities.
Amazon financing options can be especially appealing to startup business owners wishing to expand their Amazon inventory. However, there are several considerations before you accept Amazon lending options. There are extremely rigid eligibility procedures in order to qualify for Amazon loans. All Amazon business loans are collateralized by your inventory. These loans required fixed monthly deductions that are processed automatically. Accepting the terms leaves you with very limited uses for loaned funds. Often, purposes are limited only to selling products on Amazon. Furthermore, due to short repayment periods, these loans often include high monthly payments. Consider the points mentioned above if you are wondering if Amazon business loans are the best decision for your startup.