Financing Options for Amazon Sellers

Financing Options for Amazon Sellers

Amazon is a fantastic platform that has the potential to expand your business and help you increase overall revenue. With Amazon revenue growing steadily year after year, Selling through Amazon offers many opportunities for your business. It can help you gain more brand recognition, increase your ability to reach out to potential clients, and more. However, before you get started, it's essential to consider the best financing options for your needs and how they can impact the future of your new online business. 

Establishing an online business often seems like an easy and inexpensive approach to selling products. Indeed, you won't need to hunt for a storefront, negotiate rental terms, and pay rent and utilities each month. That doesn't mean, however, that there aren't costs involved.

You will likely need different types of financing to cover short-term, medium-term and long-term needs. For instance:

  • Short-term capital is ideal for boosting cash flow to keep stock on hand, offer more options, and invest in marketing to attract new customers. 
  • Mid-term capital is best for covering leases and purchasing equipment.
  • Long-term funds are best suited for building mortgages if that is something you need down the road as you expand your brand. 

And while seeking investors to cover your costs may be a more traditional route, you lose ownership. Similarly, typical bank products make you jump through hoops and aren't suited for eCommerce businesses with workflows and needs that differ from traditional brick-and-mortar stores. While the need to free cash flow is universal, lenders need to adapt to the realities of eCommerce shops when setting their terms. Fortunately, several financing options can help you, as an Amazon seller, get a better feel for what options you have for financing your business. 

Financing Options for Amazon Sellers

Starting your business as an Amazon Seller is only the beginning. Once you've set up your store on the Amazon Marketplace, you'll want to market your products so you can rise above the rest. Amazon's storefront is a competitive market, so you'll need to fight for your spot in the search results. The investment of time and money is ongoing. While it can be fruitful with the right strategies, it's also something that Amazon sellers must constantly consider. That includes knowing what financing options are available for Amazon sellers and how to use them best. 

Many business owners remember to budget carefully for the launch of their business when they must bring in inventory and get started on their overall financing. However, they may forget about the more in-depth financing that must take place to continue running the business effectively. Researching financing options for Amazon sellers is critical to setting your business up for success, whether you're just getting ready to launch your new business or you've been operating for a little while but have run into a snag that interferes with overall cash flow.

eCommerce Business Challenges

In a perfect world, business would flow so smoothly. You order inventory, it arrives on time, the customers line up and take exactly what you have, and the cycle starts again with new stock coming on time to fill the following orders. Of course, we live in a perfectly imperfect world with occasional bumps in the road.

You may encounter some common challenges along the way, which you should be prepared for. These elements of doing business will affect your cash flow, so planning will ensure you can lessen the impact they will have on your ability to transact and grow your business.

The Cost of Holding Inventory

The primary investment of eCommerce businesses is in inventory. You'll need to outlay funds to have stock available for your customers, mainly if your products come from overseas. While some supply chain challenges have started to ease, snarls and slowdowns across the supply chain continue to impact many businesses and industries. As a result, paying attention to inventory has become even more critical so companies can be sure they have the right stock on hand. Knowing and exploring your financing options as an Amazon seller can help ensure that you have the right cash to deal with those potential challenges. 

As a seller, you are often eager to stock up on more products, which can tie up your cash flow.  Cash flow is cited as the biggest challenge facing business owners, with more than 50% of business owners surveyed by the Better Business Bureau (BBB) saying they "didn't have enough cash or credit to last them past 60 days." On the other hand, exploring financing options geared toward Amazon sellers can help ensure you have more cash to deal with those transactions. 

Increases in Shipping Rates

Shipping costs continue to go up around the world. Shipping costs can immensely impact the overall cost of goods for sellers and buyers alike. While inflation may ease in some areas in the near future, many industries are still feeling the strain of high shipping prices. Worse, you have to get those goods to you--or your Amazon warehouse--before you can sell them, which can contribute to cash flow problems. Financing options for Amazon sellers can put you in a better position to deal with those needs and ensure you can continue delivering high-quality products to your customers. 

Increased Competition

Global eCommerce has increased markedly over the past several years. Consumers have started to look for more convenient online options for the goods they need. After the lockdowns and restrictions of the pandemic, some consumers may have returned to stores for many of their needs. Still, others continue to take advantage of the convenience of eCommerce options. Furthermore, more brands than ever fill those spaces, meaning that eCommerce businesses, including Amazon sellers, must be prepared for those ongoing challenges. 

Financing Can Help You Grow

You may have noticed a common thread amongst these challenges for eCommerce businesses: they each have a financial impact. That means none of these things are insurmountable with the correct planning and financial support.

eCommerce businesses have unique needs that set them apart from brick-and-mortar retail stores, making financing options for Amazon sellers a bit more challenging. Competing in a global marketplace means pricing is always a consideration. Your margins will be in flux as you remain on par with your competition, and they will be slimmer than those who are the only shop in town. If you're not investing in growth, you can be sure your competition is.

Often, Amazon sellers opening their stores are smaller businesses. These vendors benefit from an online marketplace's availability to offer their goods, but they need all the practical support they can get. Small and new businesses may struggle with several potential cash flow problems.

When cash flow is tight and often wrapped up in inventory, how can you ensure you can afford to market your products and increase the breadth of your product offering when the time is right? It starts with having suitable Amazon financing options in your back pocket so that you can continue to grow your business even through potentially turbulent times. 

The Perfect Fit: A Financing Model for Your Business Model

There is no shortage of financing options for businesses out there. While traditional business models have myriad opportunities to apply for financial support, owners of eCommerce stores should find a partner that understands their needs. The financing options for Amazon sellers are similar to other businesses, but non-traditional options are becoming popular. By understanding Amazon financing options, you can prepare for financial challenges, set yourself up for success, and raise the odds that you will remain competitive, even if you need short-term loans and financing options to help manage your inventory.

The first step to aligning financing to business needs is determining what asset you will use your cash for and then aligning short-term, mid-term and long-term financial products based on that asset. For example:

  • Inventory is a short-term asset and requires a short-term finance solution.
  • Equipment is a mid-term asset and demands mid-term financing.
  • Real estate is a long-term asset that a long-term loan should cover.
Download Full Version of Infographic

Business Credit Cards 

The easiest short-term financing option is a business credit card. They are plentiful and easy to apply for, often taking a matter of minutes via online application forms. These cards have flexibility, allowing you to leverage credit for payments to vendors and partners. Business credit cards can offer many advantages as a financing option for Amazon sellers.

Credit cards can be perfect for day-to-day purchases, like office supplies and incidentals. But if you're trying to use them for inventory, for example, they don't always match your cash conversion cycle, typically 90-120 days. If the bank requires repayment every 30 days, you can see how easy it is to enter the red. They charge interest if the balance isn't paid in full each month, meaning they can cost much more in the long run. They also charge late fees and other penalties that drive the cost much higher than the interest rate alone. 

With credit limits, merchants often can only cover some of their expenses with a single card. This means taking out multiple cards, which will impact your credit score. Managing numerous cards increases the risk of missed payments and cash crunches when minimum payments are due – especially if sales aren't aligned with payment cycles.

They're also at risk for fraud in the same way personal cards are. Should your card be exposed to fraud, the institution will freeze it while the investigation takes place, impacting your ability to do business.

Cash Advances and Lines of Credit

Another short-term financing option is a cash advance. You can apply for a cash advance from a bank, but again, the application requirements and advance terms are not suited for eCommerce businesses. They don't understand the risks associated with an eCommerce business. 

Once you establish your business and bring in enough revenue to prove to the bank that you are profitable, you can apply for a bank line of credit. However, many eCommerce businesses may struggle to establish an effective line of credit, especially if they cannot show steady income over time. Using an option geared toward eCommerce may make more sense for many businesses.

Small Business Loans

Loans offer a longer-term financing option for your business, which can be helpful when making a more significant purchase. Sometimes, they may be a viable option for Amazon seller financing, especially if you want to expand beyond Amazon and do more with your eCommerce brand. Small business loans from traditional banks and credit unions offer to help with extra cash to reinvest in your business. But it's important to understand that these loans are long-term, anywhere from one to multiple years, and are intended for larger purchases. If you use a loan to purchase inventory that sells in 90-120 days, you continue to pay off that loan way past 120 days. You may not have the cash you need to purchase the next round of inventory, but you will still be required to make loan payments, even if you aren't selling products to cover those payments. 

These loans are often presented at lower rates, but be aware that the approval process is more extensive and time-consuming than credit cards. Sometimes, it can take weeks to determine whether you will be approved for the bank loan you need. The world of eCommerce moves faster than that.

Loans demand monthly repayments and don't account for sell-through and income. While loan terms may seem manageable when your business is at a high point, the world of eCommerce can be unpredictable. eCommerce businesses need flexibility which banks and credit unions don't offer. Banks are simply not made for eCommerce sellers. The turbulence of eCommerce requires flexibility to support the ebbs and flows of that business model. 

Amazon Lending

Amazon Lending began in 2012 and offered short-term loans of 6 to 12 months to Amazon sellers. The application process is easy, and interest rates range from introductory rates at 9% to established rates from 18% to 25%. 

Amazon requires fixed monthly payments that don't always align with your sales volumes. The term of the Amazon loan doesn't align with inventory turnover cycles, providing more money than needed to turnover inventory in a quarter. This frontloading increases your overall interest expenses and monthly payments, creating a misalignment between expenditures and sales performance. 

Amazon Lending is an invitation-only program. Amazon determines eligibility and invites sellers to accept a predetermined loan offer. They typically only offer equal monthly or interest-only payments across the term or the first three months. That means that, in many cases, only Amazon sellers who don't need it will have access to this financing option. 

Amazon often invites existing borrowers to refinance outstanding loans, rolling over existing balances into a new loan at a higher interest rate. Given the invitation-only nature of Amazon Lending, you don't know if you'll be invited again if you decline future offers. And those invitations may not align with the timing of your specific cash flow needs.  

Amazon Lending offers are based on your Amazon store performance, which can be a significant downside if you're amongst the 80% of sellers who also leverage other platforms to get your product out there. Suppose you struggle to sell the inventory you've brought in. In that case, Amazon will continue to collect repayments from your Seller Central account and reserves the right to place a hold on your merchandise. While Amazon Lending may help provide Amazon seller financing that will help get your eCommerce business off the ground or keep it moving, it may also present complex difficulties. Other financing options for eCommerce and Amazon sellers can better prepare you to meet your goals. 

eCommerce Financing

As a financing option, eCommerce financing can offer several advantages. An eCommerce loan is designed to provide the capital you need to scale your business, purchase inventory, or ramp up your marketing when you need it. It is explicitly designed around the needs of an eCommerce business, with repayment terms based on inventory movement, not on strict terms that have nothing to do with the actual performance of your brand. 

Using an eCommerce financer means you can get the money you need in your hands faster—an element critical to your eCommerce brand. By working with an eCommerce provider, you can also set up an adaptive repayment schedule to help you manage loan repayments as sales move through your business. That simple strategy can offer great convenience as you adapt to the changing supply chain, current customer demands, and more. eCommerce financing can be the best option for Amazon sellers, especially those just starting to get on their feet. 

Related: eCommerce Loans: Scale Up in 2023 with a Cash Advance for Your Business

Tips for Getting Started

We've given you a guide to considering the financial implications of starting an Amazon business and understanding the financing options for Amazon sellers. But that's not all there is to know to ensure your success. We have a few tips on how to start on the right foot.

What Is Fulfillment by Amazon (FBA)?

FBA is an approach to selling on the Amazon Marketplace. Amazon will store your products in their inventory, fulfill orders, and offer customer service to your customers on your behalf. To join FBA, you'll create an Amazon Seller account and add FBA.

You'll create product listings or integrate your inventory into the online portal. Prepare your products so they're ready to ship and have them delivered to the Amazon warehouse. When a customer order arrives, Amazon will dispatch the products and provide tracking and information to the customer directly. 

They also provide 24/7 customer service for both you and your customer. This saves you the hassle of processing orders and picking and dispatching products.

You'll also qualify for free shipping offers and have the opportunity to join the Amazon Prime program, giving your customers free 2-day shipping. Products eligible for Amazon Prime enjoy more robust sales performance making Amazon FBA a vital consideration when maximizing your sales on Amazon.

Related: Amazon FBA Profit Guide: Make Sure You're Always Up

Start with a Business Plan

Do yourself a favor, and create a business plan. This is essential for those who haven't yet started selling on Amazon. But if you've already begun, it's not too late. If you don't have a business plan, put one together. It will give you a framework to follow and to keep your business on track.

Your business plan should include your mission statement, objectives, market analysis, an overview of your products and services, and strategies for marketing, advertising, and finances. Don't let this step overwhelm you – it's meant to give you a good overview of your business and goals and help you see places where you would benefit from more research or understanding.

Find Your Niche

The Amazon Marketplace is a giant platform with a seemingly endless variety of products. To ensure your success, you'll want to start finding your niche.

Having a product you'd like to sell doesn't ensure people will buy it. If you want to be profitable in this endeavor, spend some time finding the niche that your product fits into and do your research. 

Understand the market trend for your product, including its practical value and recognition. Look at its position in the market and see if you can turn that on its head. Could you adopt a new selling point to freshen up the messaging and set yourself apart?

Research the Market

"Know yourself, know your enemy. A hundred battles, a hundred victories."

Okay, this quote from The Art of War sounds dramatic, but this is the importance of market research. Knowing yourself means understanding your strengths and your weaknesses. Knowing your enemy – your competition – means understanding theirs as well.

Enter the market with optimism, but be well informed. Track your competitors to get a realistic view of the market you're entering. See whether pricing and availability are stable and where fluctuation happens. This is the best way to be armed with understanding and better prepared for victory.

Research Suppliers

This step also requires some due diligence and is more complex than ordering a product as a consumer. You'll have a lot more riding on your orders to suppliers, and the success of your business will rely upon their ability to fulfill. 

Contact multiple suppliers if you can, comparing prices and business methods. Ensure you interact with them, see how responsive they are, and weed out scammers.

Get a good understanding of their products, price structure, and minimum order quantities. A clear picture of their payment options and terms is also crucial—order samples to review quality and packaging. Narrow down your options based on these critical factors.

Respond to Customer Reviews

Amazon Sellers thrive based, in part, on customer reviews. Word-of-mouth is the best marketing tool, and in this day in age, that most often happens online. Testimonials are social proof that your products and services are beloved by your customers.

Solicit customer feedback through emails and social platforms. Respond to online feedback to show that you're present, reading testimonials, and playing an active role in sales.

Get the Support You Need to Launch Your Brand

When you're beginning your journey as an Amazon Seller, determine what you need cash for and work with the right lender to right-fit a financial product to that need. Many seller financing options exist, from small business loans to eCommerce loans designed specifically for online businesses.Onramp is an eCommerce financing expert who can align your short-term capital with your business. We allow repayment based on your sales rather than a set repayment schedule that may be difficult to meet if sales do not go according to plan. Get prequalified in minutes with zero risk today.