Loan for Amazon Sellers: Is This The Only Option?

Loan for Amazon Sellers: Is This The Only Option?

Why Consider a Loan for Amazon Sellers?

You may consider taking your next growth step or even starting your own eCommerce business on Amazon. If this is the case, a loan for Amazon sellers could have crossed your mind. Is that the only financial option you have to get working capital and start competing for real?

Growth rates for eCommerce sales are expected to increase steadily from 2022 to 2025, giving entrepreneurs an excellent opportunity to pursue their dreams. However, online businesses have different working processes and requirements than traditional companies. When setting terms for eCommerce retailers, lenders need to adapt to the realities of the industry despite the universal need to free cash flow. As a seller, you need the proper support, and we'll talk about a loan for Amazon sellers and other alternatives here.

The Amazon Marketplace is a great place to create a store, but you need to market your products to achieve success. You will have to compete for your spot in the search results on Amazon's storefront since it is an aggressive market. It takes time and money to achieve results, and the correct strategies can yield fruitful results.

Introducing inventory and conducting transactions are two of the first steps that many business owners budget for when starting their company. You'll learn how to receive the financial support you need for your business to succeed so you can begin or optimize your journey as an Amazon seller.

The Challenges that Come with ECommerce

The online selling business environment would be ideal in a utopian world. As you order inventory, it will arrive on time, and once it is placed in the storefront, your customers will line up and take exactly what you have available. New stock arrives on time to fill future orders, and the cycle repeats. As you know, we live in an inevitably imperfect world, and there are occasional bumps along the way. Just look at the current supply chain issues and their impact on virtually everything we buy.

The eCommerce world is exciting, but it isn’t without its risks and roadblocks. Planning to deal with these elements of doing business will make sure they don't get in the way of starting your company or your path to growth.

Elevated costs associated with storing inventory

ECommerce businesses invest the majority of their resources in inventory. Having stock available for your customers will require a significant outlay of funds, mainly if your goods are imports. 

Lead times have increased due to the pandemic and other global crises, which has meant that companies have had to wait for stock longer than anticipated, sometimes months or more. Many factors affect the cycle of inventory, from materials depletion and delays at ports and customs to understaffed delivery companies. As a result, planning for this process is becoming increasingly challenging. 

As a seller, you are likely to have to stock more items so you don’t experience a stockout and are unable to fulfill customer orders. But unsold inventory ties up your cash flow. This is one of the most common issues eCommerce sellers face: balancing inventory with cash flow.

Related: The Best Tips for New Sellers on Amazon

Increases in shipping rates are taking place

Shipping rates have increased in recent months. There is no doubt that the rate is a critical factor in calculating your cost of goods (COGS), as it is incorporated into the price the seller charges you and what you pay to ship to your customers or to Amazon if you use their Fulfillment by Amazon (FBA) option. 

A total of 80% of the goods we consume are transported by ship, according to UNCTAD (United Nations Conference on Trade and Development). Due to the increase in shipping rates worldwide, we are reminded about just how susceptible we are to the impacts of fluctuating shipping rates.

Growing competition within the industry

Since the pandemic's start, a marked increase has been seen in the global eCommerce trade. Because they were stuck indoors, consumers turned to alternative methods of receiving goods. When businesses had to close their doors, they turned to eCommerce to meet the increasing demand. 

There has been an acceleration in the move toward online fulfillment due to the pandemic, and this movement will not slow down anytime soon. According to a Forbes report:

  • In 2021, the online sales market in the United States was $870 billion, an increase of 14.2% over 2020 and a 50% increase over 2019. 
  • The eCommerce sales represented 13.2% of the total US retail sales for 2021.
  • In terms of growth rate, over the past two years, one of the fastest-growing categories of eCommerce sales has been furniture, building materials, and electronics, which have collectively grown by more than 200%. 
  • The eCommerce market for foods and beverages has grown 170% since 2011, and it represented 9.6% of all grocery sales in 2021.
  • The apparel industry is one of the few categories of eCommerce that experienced slower growth than the industry average of 39%.

As a result of this spike, competition will inevitably follow. The increase in the number of online businesses will make finding your niche much more challenging yet crucial. You must invest a significant portion of your time, energy, and resources into conducting market research to set up, maintain, and grow your business.

Besides, you also need to get extra cash for your marketing outreach efforts. This measure will ensure that you reach new customers and make yourself more noticeable among your competitors.

Related: Do You Need an LLC to Sell on Amazon?

Your Business Can Benefit From Financing

ECommerce businesses deal with these challenges. Here is what makes them all more or less similar: they all impact the bottom line. Therefore, with the correct planning and financial support, none of these problems are out of solutions.

A loan for Amazon sellers is somewhat more difficult to get than a loan for a brick-and-mortar retail store due to the unique needs of eCommerce businesses. Since they are competitors in a global market, pricing must always be considered when seeking financing. You will find that your margin is constantly fluctuating as you try to stay on par with your competition. They will likely be investing in growth if you aren't.

In addition to the price of shipping and packing materials, you should also consider that you will need to deliver your products to customers who are either national or global in scope. Moreover, you will have to cover shipping insurance if the product is damaged or lost during the shipping process.

The majority of Amazon sellers who open their stores are small businesses. An online marketplace can make it possible for these vendors to sell their products to a worldwide audience. However, they need all the help they can get to make it successful. Small and newer businesses are at the most significant risk of experiencing problems dealing with cash flow at the startup stage.

In times of tight cash flow and inventory often sitting atop cash flow, how can you make sure that you can afford the marketing of your product and can broaden the scope of what you are offering at the right time?

Choosing the Right Financing Model for Your Business: A Guide To Success

As far as financing is concerned, there are plenty of options available for businesses. Unlike traditional companies with numerous opportunities to apply for financial support, eCommerce store owners should carefully choose a partner that understands their needs. Your business is different than brick-and-mortars, and you need to match funding options with each business need.

In most cases, a loan for Amazon sellers works in the same way as loans for other businesses, but there are non-traditional options that are becoming more and more popular.

Credit cards for small businesses 

Many business credit cards are available, and the application process takes only a few minutes via the internet. It is easy to take advantage of the flexibility of these cards, which will allow you to use credit to pay vendors and partners. You also build your business credit, can often get approved for a higher amount, and carry less risk to your personal finances. Business credit cards are necessary for the day-to-day costs of running a business, such as purchasing office supplies, software apps, branded marketing materials, etc.

But just like a personal credit card, if the balance on your business credit card is not paid in full each month, you have to pay interest, resulting in a much higher amount over the year. It is not just the interest rate themselves that drives up costs, but late fees and other penalties. When credit limits are low, you may not be able to cover all of your expenses using a single credit card. 

As a result, you will have to obtain multiple cards, which will affect your credit score adversely. It is riskier to manage various cards when minimum payments are due since you are more likely to miss payments and run out of cash - especially if sales are not aligned with payment cycles.

In the same way that personal credit cards are vulnerable to fraud, corporate cards are also at risk for fraud. If your credit card is compromised, it will be frozen during the investigation, which will impact your ability to do business.

Business loans for small businesses

The traditional banks and credit unions also offer small business loans, which can be used to obtain extra cash to do some reinvestment in your company. Loans are ideal for larger, longer-term investments, such as inventory space, salaries, website build and optimization, and branding and packaging, but they aren’t so great for smaller, shorter-term needs, such as purchasing inventory. However, it should be noted that while these loans are often presented at lower rates, the approval process takes longer and is much more cumbersome than that credit cards. 

Bank loan applications can take many hours to collect all the required documents and complete, not to mention a few more weeks to even find out if your application has been approved. However, the world of eCommerce moves much more rapidly.

Loans demand repayments every month and do not consider the performance of your business. The terms of a loan seem logical when your business is at a peak, but in eCommerce, sales can turn on a dime at any given time. Banks and credit unions cannot provide the flexibility that internet-based businesses need. Essentially, the banking system is not designed with online sellers in mind. 

Obtaining funding in non-traditional ways 

The term 'non-traditional' refers to those forms of financing that are geared specifically for the unique characteristics of eCommerce business models. There is more flexibility involved in the cash offered by these financiers; instead of a set monthly repayment amount, they take a percentage of actual sales. You can get on-demand cash in days with minimal paperwork, zero interest or minimum payments, and automatic distribution and repayment with a linked eCommerce store and bank.

These companies approach eCommerce loans for Amazon sellers with a fresh perspective, working with the seller instead of retrofitting ancient banking products to a modern selling platform. It’s a fast, less risky option for getting working capital that is tied to the sales and the fluctuations in the market that impact eCommerce businesses.

Making Sense of ECommerce Financing

It can be exciting and financially rewarding to be involved in the eCommerce industry as an entrepreneur. To succeed while selling online, it is essential to have a clear strategy and the right approach, financing, and data. 

Creating a capital stack that works for you is critical when developing a strategic financial approach. You want to ensure that the funding options will adequately direct your money. It's essential to be well informed and deliberate to succeed in this competitive but growing market. 

If you are looking for a trusted financial option and keep the eCommerce entrepreneur in mind, don't hesitate to reach out and inquire. You may just find attractive options for getting the cash you need.