Amazon Lending has been around since 2011, but it didn’t become a more widespread program until recently when it was announced they would be partnering with Bank of America. Through the BoA partnership, Amazon was able to gain access to the necessary capital to provide credit to more merchants.
The Amazon Lending program is available by invitation only. In June 2017, Amazon said it had issued more than $1 billion in loans during the previous 12 months. The targeted customers are Amazon merchants and small businesses who are relatively new but are selling through Amazon.
It’s not necessarily the right option for more mature businesses and merchants, because interest rates can be somewhat high, and it’s possible for more established companies to find better rates. There’s also not a lot of flexibility, which may be unappealing for more mature businesses. But if it seems like it would be a good option for you, read on to see how it works.
Getting a Loan Through Amazon Lending
Again, Amazon lending is an invitation-only program. If you offer a small business product on Amazon, you may qualify. To receive an invitation, you first have to register as an Amazon seller and set up your account. Then, you sell through the marketplace. If Amazon feels you’re a good fit, they’ll directly reach out to you.
The idea behind business funding from Amazon Lending is that it’s similar to a merchant cash advance. You’re getting a lump sum advance, and then you pay it back by letting Amazon have a portion of your sales. Repayment is collected automatically as a fixed percentage taken out of a merchant’s gross monthly revenue on Amazon. It’s essentially a short-term Amazon small business loan at its core.
The application process is fairly simple. You can accept or decline your invitation in the Seller Central area of the site. Amazon isn’t concerned with things like credit score or a financial profile—their concern is your business performance on Amazon.
Some qualifications considered by Amazon when they’re providing funding include sales history, inventory restocking, customer service, and particular algorithms related to a merchant’s activity on Amazon. Amazon doesn’t require things that you would submit for a traditional small business loan like revenue and tax returns.
Basic Information: Rates, Terms, Fees & Limits
Amazon small business loans through the Amazon lending program range from $1,000 to $750,000. Terms are up to a year, and interest rates typically range from 6% to 14.5%. Other outlets have the maximum interest rate listed at 16%. There are no origination fees or prepayment penalties.
Benefits for Small Businesses
There are quite a few benefits that come with a small business loan through Amazon Lending. First, it’s simple to qualify once you’re invited. There are minimal fees, and you don’t have to put together all the documents and information you would need for traditional financing. It can be a good option for a business that might not qualify for funding from other sources.
It’s common for small business owners to be rejected by other lenders because they don’t meet stringent qualification requirements. Really all you need to qualify for Amazon Lending is a strong seller history. Interest rates can be lower than short-term loans as well.
Downsides for Small Businesses
Of course, Amazon Lending isn’t without potential downsides. First, you’re going to be putting all of your business’ future into the hands of Amazon. When you have an Amazon Seller Account, you don’t have freedom and flexibility in a lot of ways. For example, you don’t have much control over how returns and refunds are handled. You’re also at the mercy of Amazon’s decisions.
It’s difficult to build a robust brand on Amazon because Amazon is ultimately the brand consumers remember.
With Amazon Lending, you also have serious restrictions as to how funding can be used. It can only be used to build or restock your Amazon inventory. You will have to be prepared for automatic deductions from your Seller Account to repay the Amazon small business loan as well.
If you have a business that is already focused solely or almost exclusively on Amazon sales and you’re invited to Amazon Lending, it could be a good option for you. Of course, if you want to grow your business outside the confines of Amazon, this particular funding option probably isn’t ideal. It does restrict funding in many ways based on your activities on Amazon and limits your flexibility as a small business owner.
Be sure to compare the best small business loans here at LendEDU if you are looking for alternative options.