If you're one of the over two million Amazon sellers, loans and other forms of financing may be on your mind. If so, you'll want to explore the different types of financing options you have to pay for short-term, medium-term and long-term investments.
It’s essential to understand that eCommerce businesses require more than one type of financial tool. Long-term and medium-term loans, for example, are best suited for larger, longer-term assets, such as leases, property mortgages and equipment. Short-term products like credit cards and cash advances are best for smaller, short-term purchases like inventory and marketing spend.
Read on to learn about selling on Amazon and how industry-specific funding can help you grow your company.
All About Amazon Sellers and Loan Benefits
For an Amazon seller, loans, credit cards and cash advances are the traditional ways a business funds its operations, but they aren’t always offered just by banks. eCommerce lenders are on the scene, offering non-traditional cash advances that are an ideal addition to your capital stack and can make a significant impact on both growth and day-to-day business.
eCommerce financing is a type of specialized lending that offers unique benefits to businesses that sell online. Modern and business-friendly, it uses technology to provide funding, often without late payment fees or monthly payments.
Are you one of the 96% of Amazon sellers that plan to expand their business in 2021? If so, you may be looking into various ways to fund your business. Before taking on a financial commitment, it's a good idea to learn about the platform sellers use, Amazon Seller Central.
What Is Amazon Seller Central?
If you're already selling with Amazon, you probably know about Amazon Seller Central. But if you're new to the platform, you might need a short primer.
Amazon Seller Central is where companies sell their products to customers that use Amazon. The web interface allows businesses to market to potential customers directly.
Businesses that sell with a Seller Central account are marketplace or third-party sellers.
FBM vs. FBA
Amazon sellers have two options for order fulfillment: do it themselves (FBM, or fulfillment by merchant) or outsource it to Amazon (FBA, or fulfillment by Amazon). Each method has its pros and cons, depending on your business model, volume and past experience.
With FBM, you always have access to your inventory so you can solve any issues immediately. You also have higher margins because you don't need to pay fulfillment fees to Amazon.
On the other hand, FBA makes shipment and customer service a breeze so you can focus on different aspects of your business. This method also gives you access to 95 million Amazon Prime subscribers since they are more likely to purchase products with free delivery via Prime.
How Big Is the Market on Amazon?
Being an Amazon seller allows you to reach the almost 200 million people that visit Amazon.com every month. This model is also incredibly effective since more than 50% of Amazon sales come from third-party sellers.
Marketing to this number of potential customers effectively can be a challenge, especially for small businesses. For many, one solution may be to increase cash flow by accessing business-appropriate financing.
For Amazon Sellers, Traditional Loans and Cash Advances Don’t Always Cut It
Without specialization to Amazon sellers, loans and other financing can be risky to use for working capital needed for growth. They typically have long approval wait times, charge interest and require minimum monthly payments. They don’t consider how an eCommerce business works, like the 60-120 day cash conversion cycle that challenges sellers to make minimum payments and still have enough cash on hand to purchase more inventory.
eCommerce financing is different, geared specifically for unique eCommerce business models. With no late fees or fixed monthly payments, they're a flexible, short-term financing option for online businesses with shorter sales cycles and a constant need for working capital.
The financing process starts with a brief evaluation of the online seller's business model and sales. The eCommerce lender then makes a cash offer based on need and volume.
The borrower syncs their store to the lender with a read-only API, a simple process that allows for automatic payments. The lender provides the cash, and the seller makes a small payment on the loan (as low as 1% of sales) each time the store makes a sale.
Since borrowers only pay when they make a sale, the repayment process is much less painful than it would be with a traditional bank loan or credit card.
Amazon Sellers: Loan and eCommerce Financing Benefits and Opportunities
If you have a business as an Amazon seller, loans can be valuable parts of your capital stack. These long-term financial products can fund larger purchases, such as warehouses, executive salaries and technology investments. The benefits to an Amazon Seller from loans and cash advances can be significant.
The problem is, many Amazon sellers try to use them to purchase short-term assets like inventory. These bank loans aren’t designed for working capital. You don’t have to get rid of them in favor of more specialized eCommerce financing. Instead, add them to your capital stack so you can align the correct type of financing to your specific needs.
Reducing Cash Flow Issues
69% of small business owners worry about cash flow. If that sounds familiar, you may want to explore financing for Amazon sellers. Loans aren’t ideal in this situation, but eCommerce financing will help keep your cash on hand more predictable. That way, you can better manage advanced payments, human resources, and other issues that can cause complications with cash flow.
Purchasing Additional Inventory
As a reseller, you may want to increase your inventory to ensure you have enough product during key shopping periods like holidays. Businesses can also benefit from purchasing in bulk or buying items when they find an attractive price. eCommerce financing will help you increase cash flow quickly, allowing you to take advantage of opportunities loans don’t offer.
Paying Off Credit Cards or Loans
Did you start your business with a credit card or traditional high-interest loan? If so, you can use your eCommerce financing to help pay off higher-interest liabilities. In turn, you'll increase your cash flow and save money.
Related: Financing Options for Amazon Sellers
How eCommerce Financing for Amazon Sellers Is Unique
Modern financing for Amazon sellers offers a number of specialized benefits for your business, like sales-dependent payments, ready cash on hand, and lower costs.
Funding in Sync with Sales
One of the most attractive aspects of this kind of financing is the focus on Amazon-dependent businesses. Funding and payments coincide with sales, so you have money when you need it and make payments when you have the cash.
There will be no need for concern about upcoming payments when sales have been slow. Responsive financing also means you can increase your cash flow when your sales are going well.
Cash When You Need It
eCommerce financing is also unique because of its effective use of modern technology. With a standard bank loan, you borrow a certain amount of funds ahead of time. In the end, it may be too much or too little, but you’re always paying interest and must make monthly payments, even if sales are down.
If you request eCommerce financing as an Amazon seller, the lender is plugged into your account and can tell how much cash you need and when. This ability allows them to offer real-time, on-demand financing that can make a crucial difference to your operations.
Responsible companies that offer eCommerce financing focus on the success of the businesses they are working with. This focus on the recipient contrasts starkly with other types of financing like bank loans and credit cards that hope you can’t pay.
Instead of maximizing earnings from interest and late fees, eCommerce financing companies minimize costs to help you grow your business. This model allows for a sustainable win-win relationship where both parties have skin in the game. As your business grows, so does theirs.
For an Amazon seller, loans and cash advances are acceptable in some instances. Still, eCommerce financing is more tailored to the industry, providing a straightforward, modern way to increase cash flow. It allows companies to grow without the growing pains of credit cards or traditional bank loans.
If your eCommerce business is looking for financing, Onramp Funds makes it fast, easy and painless. Founded by veterans of the eCommerce industry, it's focused on helping businesses succeed. Schedule a call with Onramp Funds today to get started.