Is Amazon Lending Right for your Business?

Amazon Lending, Read This Before You Get A Loan

Amazon really knows how to monetize its third party sellers.

They charge for:

  • Fees to store products
  • Increased storage fees during holidays
  • A fee to ship products out
  • A referral fee on every sale
  • PPC ads
  • For a fee, they will even loan you money to restock your products

No wonder Amazon likes their sellers!

That last one is their financing program, aptly named Amazon Lending.

Amazon Lending at first seems very tempting, simple, and convenient.

But is it the right choice for your growing business?

We’re going to examine all the pros and cons of Amazon Lending so you can decide whether it’s right for you.

Let’s get right into it.

What is Amazon Lending?

Amazon Lending is an invite-only financing service provided to Amazon sellers that can be used on product restocking, product line expansion, and advertising.

If you’re new to Amazon or eCommerce in general, you will quickly realize that your current stock of products won’t provide enough cash to reorder a restock in time to prevent your current store of products from going out of stock.

With today’s delays in manufacturing, sea freight, regular freight, and Amazon warehouses being backed up, you need to start restocking earlier than ever.

This means you’ll need to come up with cash from an outside source.

Early on in your company’s growth, you can use cash you have saved up, use cash from your day job, use a credit card, or borrow from friends and family for funding.

As you grow more, however, these sources of cash won’t be sufficient to pay for restocking.

With traditional business loans being extremely hard to obtain for online businesses, this is where alternative funding options like Amazon Lending come in.

How do I qualify for an Amazon Loan?

If your account is in good standing and has positive metrics, Amazon will send you a prequalifying loan invitation.

How much does Amazon lend sellers?

The loan amount is determined by your sales. Typically, a higher amount of sales will pre-qualify you for a higher loan.

The minimum loan is $2,000. While online others say their maximum is $750,000, I couldn’t find any official information from Amazon to confirm this amount.

screen shot of the loan range offered by Amazon
Example of loan range offered by Amazon, showing the minimum of $2,000

How can I apply for an Amazon Loan?

An invitation to sign up for Amazon Lending is sent to the email associate with your Amazon Seller account.

There will also be a dedicated section on your Seller Central Dashboard to apply. 

tile of loan invitation from the amazon seller central dashboard
This is what the tile looks like on your Seller Central Dashboard

Once the invitation window has passed, you will have to wait for another invitation from Amazon before you can apply again (which will offer a new loan amount and rate).

What are the terms for an Amazon Loan?

A 12 month term is the most common type from Amazon Lending.

Amazon has other shorter terms, but if you don’t qualify for it, they won’t offer it.

That’s the basics of an Amazon Lending out of the way, let’s look at Pros and Cons.

The Pros of using Amazon Lending

#1 It’s Convenient

There’s no denying that getting a loan from Amazon is convenient. You don’t need to do any research, they tell you exactly what you qualify for, and it’s paid out of your seller balance.

#2 No Prepayment Penalty

If you want to reduce the amount of interest you pay on the loan, you can elect to pay off the entire loan. Amazon will not charge any prepayment penalty.

#3 Loans Can Start Small

Many other loan services require a large starting loan.

if you can’t prove enough sales then they simply won’t give you the loan.

For Amazon Lending, the minimum amount you can borrow from Amazon is $2,000. This can be good for businesses starting out that can’t typically get a loan.

The Cons of Amazon Lending

As I mentioned earlier, Amazon Lending seems convenient and like a great choice, but when you start to peel the layers back a bit, there’s quite a few weaknesses to their offer.

Let’s look at some aspects of the Amazon Lending program that can catch you off guard.

#1 Almost “Bait and Switch” Style Rates

If you decide to try Amazon Lending, you might have a good experience the first time, only to go for a second loan and see that the interest rate is now much higher.

What gives?

Amazon doesn’t explicitly tell you up front, but the first loan is given at a “promotional” rate.

All subsequent loans typically have a much higher rate, as stated on their Interest rate FAQ for Amazon Lending.

Low interest rate
Amazon’s explanation for increased rates on subsequent loans.

#2 One Loan at a Time

Amazon only allows sellers to take on one loan at a time.

Seems simple enough, but if you need more funding for your business and you haven’t paid your existing loan off, Amazon might surprise you with what they do.

If you get a new loan, instead of allowing you to finish paying one off and starting a separate term, they use your new loan to immediately pay off your existing loan, then give you the leftover amount.

If you look at reason #1, you will know that subsequent loans from Amazon typically have higher rates.

You see where this is going.

If you take a second loan early, you’ve effectively just received a higher rate for your first loan.

You don’t even get the full amount of cash from the second loan.

If you didn’t expect this, it could hurt if you were depending on a specific number.

#3 Prequalified doesn’t mean Pre-Approved

Just because you got an invite from Amazon Lending doesn’t mean you’ve secured the loan.

Amazon is very clear that just because you have an invitation, doesn’t mean that the stated loan amount, interest rate, or approval are guaranteed.

If you think you have cash secured because of a prequalification, be careful because Amazon can deny you for one of many reasons.

If you have an invitation to apply for a loan, Amazon may pull the invitation if they think your business doesn’t qualify anymore.

#4 Locked into an Inflexible Monthly Payment Plan

Amazon loans are inflexible.

If you go with a standard 12 month loan, then you are on the hook for paying it off in 12 months, with each month’s payment amount to be exactly the same.

In eCommerce, especially these days, with delays hitting every single part of the logistics chain, it’s very possible that your products won’t be in stock 100% of the time.

You could have:

  • A container stuck at the port
  • A container on a ship that is waiting in line to get to the port
  • The checking in process takes a long time at Amazon
  • Issues getting products produced

The list these days for delays is almost endless.

Regardless of what happens to your products, Amazon wants their money each month.

Slow sales months and product delays can hurt your ability to pay off an Amazon loan.

You’re better off going with a more flexible funding option if this is an important issue for you.

#5 “Interest-only Payment” Promotion Isn’t That Great

Amazon loves to advertise their “3 months of interest only payments” loan offer.

Sounds enticing, at first, but the details aren’t so great.

First, it’s not 3 months of interest-only payments, and then you start the 12 month term.

It’s 3 months of interest-only payments, then 9 months of higher payments to still close it out in 12 months.

On top of this, since you’re deferring the principal balance for those initial payments, the overall interest you pay on the entire loan ends up being higher.

So, it’s not really a promotion, it’s more of a promotion for Amazon getting more money out of you.

Showing the difference between Amazon’s Interest-only loan and their standard loan. Notice the increase in interest paid on the “promotional” interest-only loan.

#6 The Rates Aren’t Great

To cap off all the bad parts of Amazon Lending are the rates themselves.

While I couldn’t find an official rate range from Amazon directly, an APR range of 7% – 14% is typical.

Amazon officially says rates are different on every loan, and you need to apply to find out yours.

It’s definitely unappealing to not know your rate until you’re finally approved, but there are more straightforward funding options where the fees charged stay consistent.

Is Amazon Lending Right For Your Business?

I won’t make the decision for you, but if you compare the negatives and positives in this post, you’ll see that there are options that exist for funding your business that offer more flexible payment terms at a lower, more consistent rate than Amazon Lending.

We here at Onramp Funds are here to offer your business that option.

Instead of boxing you into one payment plan, we are flexible and will adjust payments to match your rate of sales, ensuring that you are never put in a situation that can harm your business.

On top of that, you will get consistent rates that will always be lower than what Amazon Lending offers. No sudden increase on your second, third, or hundredth loan.

If you’re deciding on Amazon Lending or wanting to see if something else is out there, give Onramp a try.