Guide to Amazon Loans to Merchants

Guide to Amazon Loans to Merchants

There’s no denying it: we’re in the age of eCommerce. Bolstered by a global pandemic, the steady growth in the eCommerce industry has skyrocketed. As regulations kept shoppers indoors and shop doors closed, even those previously opposed to making digital purchases finally came around to joining the new age.

With this increase in shopping, there has been a dramatic increase in online storefronts. Whether it’s brick-and-mortar stores extending their offering to the online world, existing eCommerce merchants expanding their catalog, or individuals launching their “pandemic project” and seeking to claim their piece of the pie, the industry is thriving.

Even Amazon, the behemoth that long ago became synonymous with online shopping, has grown dramatically in the last couple of years. While brick-and-mortar shops closed for good, Amazon became the go-to source for virtually everything. They built out their fulfillment, distribution, and even delivery services by adding hundreds of thousands more employees. They’ve also continued to help their sellers with Amazon Lending - their solution for Amazon loans to merchants.

What Are Amazon Loans to Merchants?

Established in 2011, Amazon loans to merchants were initially developed as a way for the company to break into the small business lending industry. With nearly six million sellers on the platform, a vast number are small businesses.

Small businesses have more hurdles to jump than large, well-established retailers, particularly when applying for a financial boost. Bank loans are lengthy processes often requiring mountains of paperwork and even collateral to secure. Other options such as credit cards have strict repayment requirements and high interest rates, which are burdensome for the ebbs and flows of eCommerce businesses.

Amazon Lending was established as a short-term financing option for Amazon sellers. Essentially a cash advance, Amazon offers a sum of cash that is repaid through a percentage of your sales through the platform.

Requirements to Qualify

If you’re an Amazon seller and in need of a cash flow boost, you’ll likely start researching your funding options. While the terms for bank loans, lines of credit, credit cards, and other available options have fairly cut-and-dried terms for application and approval, you won’t find the same with Amazon loans to merchants.

While Amazon Lending is an established financing option that has been available for more than a decade now, there are still some things left a mystery to the public. The company hasn’t published an official rulebook for who can apply for these loans and under what required conditions. Still, thankfully, Amazon merchants have shared their experience on public online forums.

Some of the requirements to qualify for an Amazon loan are:

  • You must be an established Amazon seller
  • Have an Amazon sales history of at least 12 months
  • Your past 12 months Amazon sales total must be at least $10,000
  • Show positive metrics for customer satisfaction
  • No significant customers complaints in the previous six month period
  • Your store must be without trademark or copyright infringement complaints
  • You must comply with Amazon’s style guides for listings

You may notice this list is missing many of the requirements you expect from a lender: no credit checks, no collateral, no lengthy business cases. Essentially, Amazon’s requirements show that the merchants who receive cash are those they feel are best positioned to increase their business on the platform as a result.

How Does This Loan Work?

Amazon loans to merchants are only available to sellers in their marketplace, but there’s another layer of exclusivity as not just sellers can apply. There isn’t a way to apply until you’ve been invited. Amazon will send an invitation to pre-qualified merchants via their Seller Account dashboard.

That’s not the only element that makes this a non-traditional loan. You’ll also find that the repayment terms are quite different than you’re accustomed to. An Amazon loan to merchants functions like a cash advance. You’ll receive a lump sum of cash, and rather than rigid minimum monthly payments, a portion of your sales will be diverted to repaying the loan amount.

Loan Terms

While you won’t have a specified repayment schedule, the Amazon Lending program is a short-term loan. All repayments must be completed within 12 months.

Interest Rates

Another thing kept a mystery, Amazon has not published an official indication of their loan interest rates. The closest they’ve come is to state that their loans offer rates lower than most merchant cash advances and business credit cards.

To give you an idea: merchant cash advances have APRs starting at around 15% though they can stretch significantly higher than that. Business credit cards typically range between 14 and 20 percent.

As they hold these numbers close to their chest, we can’t share the official range for interest rates on Amazon’s loans to merchants. What approved sellers have shared, however, is that the range is anywhere between 6 and 16 percent.

Loan Amounts

Amazon hasn’t shared any indication of the average loan amount received through their lending program. They have shared that loans are available between $1,000 and $750,000, which shows the breadth of businesses that receive invitations to apply. The amount you’re offered will depend on the nature and status of your business and the evaluation Amazon applies to your business operations.

Repayment Terms

Once you accept a loan from Amazon Lending, they will hold you to monthly repayments. That doesn’t mean a fixed amount due each month under the threat of harsh penalties. It does mean that until your loan is repaid, Amazon will automatically deduct your dues from your Amazon Seller Account.

There is peace of mind for many merchants in knowing that they don’t need to manage another payment schedule. Since the amount is taken without your intervention, you don’t need to worry about missing a payment or suffering the consequences.

Amazon does mandate a monthly payment, however. That means if your sales are low in a particular month or you don’t have enough in your Seller Account to cover the fee, they’ll charge the alternative payment method linked to your account.

Much like a merchant cash advance, Amazon will take a fixed percentage of your sales from your account each month. If you were to receive a traditional merchant cash advance, this amount would adjust according to the status of your sales. Your merchant capital lender would take less in the weeks where your sales are lower or more when business is booming.

Receiving an Amazon loan to merchants involves a leap of faith to a degree. Regardless of the ebbs and flows of your sales cycle each month, you will be required to repay a fixed percentage of the loan until it is paid off in full.

Turnaround Time

Amazon loans to merchants have a swift turnaround time, owing in part to the pre-approval process. Qualification first depends upon being an Amazon seller and receiving a private invitation, and Amazon Lending tends to be pretty rapid with their approval and funding steps.

Amazon sellers can receive official approval within 24 hours of applying. Once approved, you will receive the funds directly into your Seller Account.

Related: Are You an Amazon Seller? Loans Aren’t the Only Way to Grow Your Business

Pros and Cons

If you’ve received an invitation to apply or are simply considering whether Amazon’s loans to merchants are the right choice for you, it’s good to understand the pros and cons. Now that you know how the loan works, let’s go through some of its upsides and downsides.


The Amazon Marketplace

Imagine a shopping mall in a small or rural town only a few decades ago. If you needed a new pair of shoes, a gift for your mother’s birthday, or a new piece of decor for your home, the local mall was your one-stop shop.

The Amazon Marketplace is the rural mall of our current era.

With more than 2 billion visitors to Amazon in a single month, it’s a hive of both activity and opportunity, particularly for small businesses. Getting started on Amazon is a lot easier than building and maintaining your website or opening a brick-and-mortar shop. The framework already exists for you to plug into, loading products is user-friendly, and Amazon can even handle warehousing and fulfillment for you.

It’s easy to build a rapport with a well-reputed and broadly-adopted review system as you begin transacting in the Marketplace. This review system can help you establish yourself as an online merchant and build the groundwork to expand your business.

Applying is Easy

Amazon has a leg up on their business lending competition with their application process. Traditional lenders may require lengthy business and personal credit reports, balance sheets, bank statements, P&L reports, tax returns, and more. These requirements make applying for business loans an arduous and time-consuming process. Once you apply, you may wait months for an answer with little indication of what to truly expect.

Amazon Lending makes this process a breeze. Once you receive an invitation to apply for one of Amazon’s loans to merchants, you’ve already passed the first screening process without any contribution on your part. Since Amazon’s primary concern is that your business performs well on their platform, they require personal and business history dossiers. The company already has access to your sales history and Seller Account, meaning they can both see your performance and have access to an account for repayments.

Lower Barrier to Entry

Given the rigid requirements for traditional lending options, many small businesses find it challenging to get the money they need when they need it. It’s deflating to spend a significant amount of time collecting information and fulfilling application requirements only to receive a rejection letter. Often businesses that don’t qualify for loan options rely on credit cards with high interest loans.

Lower Interest Rates and Fewer Fees

Compared to cash advances and short-term loans, the interest rate you receive on an Amazon loan to merchants may be very competitive. Indeed, Amazon doesn’t publish their exact rate table, but based on published information from Amazon Sellers and the public rates shared by other lenders, your loan from Amazon may save you some money.

Bear in mind that the interest rate isn’t all there is to a loan. You should still be sure it is worth the cost before you take it - even with a rate that feels irresistible. If Amazon Lending offers you a 16% rate on your 12-month loan, are you sure you’ll be able to leverage those funds to sell more inventory and repay the loan plus interest with enough left for yourself?

Another benefit to financing from Amazon is their lack of prepayment penalty. Many lenders will charge a fee for paying a loan off early. Of course, this is their way of ensuring they don’t miss out on the interest you would otherwise pay if you carry your loan the entire term. With Amazon loans to merchants, you can repay the loan early and save yourself some cash.


Further Amazon Reliance

Joining the Amazon Marketplace as a seller also has some downsides for all of its perks.

You may be daydreaming of starting your own business, building your brand, and creating a sense of independence through managing your own company. Many sellers find it challenging to actualize their dream by being an Amazon Seller truly.

Amazon emphasizes the product over the brand, meaning the likelihood that you’ll lay the groundwork to become a household name is very slim. What’s the last thing you ordered from Amazon? Do you know who sold it to you?

This leads many to feel a lack of control over their business venture, exasperated by accepting a loan from Amazon Lending as you’ll also be indebted to the company. Not only are you taking cash from Amazon - which you need to receive an invitation for and accept the terms set by the company, including the loan size - but you’ll then need to sell your product through their marketplace.

Use Limitations

Small businesses often have more expenses than they anticipated and benefit from a cash flow boost for various operating costs. Short-term loans for small businesses are often used for payroll, marketing and advertising, additional inventory, and equipment upgrades.

Amazon loans for merchants are not as diverse. The funds you receive can only be used to build inventory or restock products you will sell on Amazon’s Marketplace. For some, this may be enough. For many others, these loans do not meet their business needs.

Fixed Payments

As part of your agreement with Amazon, you pay a fee for each sale through their Marketplace. If your business grows, you will at some point need to pay a monthly fee in addition to this charge.

Once you receive a loan from Amazon, you’ll also need to devote a percentage of each completed sale to repay the loan and interest rate. Ultimately, you’ll pay a fixed monthly fee until your loan is repaid. If your business slows for a period, you will still be charged this fee either from the funds held in your Seller account or from your linked payment method.

Risky Collateral

While it’s true, you won’t have to pool together collateral backing for a loan as you may through traditional lending institutions, that doesn’t mean you’re free and clear of collateral obligations. In the case of Amazon loans to merchants, your inventory is your collateral. If you default on your loan, Amazon will claim your assets.

Suppose you keep your inventory in an Amazon warehouse. In that case, there are two options the company has for your stock: either holding it until you repay your loan or seizing and reselling it themselves to recoup the funds.

If you handle your inventory fulfillment and default on your loan, Amazon will ensure that your ongoing sales proceeds are directed to loan repayment and will not be deposited into your Seller Account.

Other Options for Amazon Merchants

Don’t be concerned if the pros and cons have you second-guessing Amazon loans to merchants. You won’t be left out in the cold without much-needed funding simply because Amazon’s loan isn’t available to or suitable for you.

Onramp offers funding to Amazon merchants without all of the hurdles. Consider this your exclusive invitation: if you have an eCommerce business, apply for funding through Onramp with our easy application process, and get an answer quickly. 

We won’t hold your inventory, won’t charge you interest rates, and don’t require minimum monthly payments. We’ll even allow (no, encourage) you to use the funding for things like marketing and advertising to gain new customers. We connect directly to your Amazon Seller Central and your bank, so when your customers pay you, we take 1% of those sales to cover our fees. That’s it. 

Want to learn more? You owe it to yourself to get out from under the limitations and risks of traditional bank loans and Amazon loans to merchants. Contact Onramp to see how to get the working capital you need easier, faster, and with less risk.
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