No matter what industry you’re in, getting a business loan requires careful consideration and thorough research. A small business loan loan can give you the much needed capital you need to grow your business and take it to the next level. Unlike fundraising from traditional investors, bank lenders won’t get involved in your operations and you’ll retain full creative control over how you manage your business.
Additionally, business loans typically have lower interest rates than other funding options like credit cards. And lastly, a good business loan can help build better business credit and put you in a stronger position to borrow from a financial institution in the future.lending
However, deciding where to get your small business loan from can be tricky. It’s one of the first decisions you’ll have to make—and one of the most important. Years ago, business owners primarily considered traditional banking institutions for their loan options.
Recently, though, Amazon has been giving more loans to small business owners through their Amazon Lending program. Long gone are the days where lending derived solely from brick and mortar banks. Now, tech giants like Amazon, Facebook, Google, and Apple are exploring their own systems of financing.
But what is Amazon Lending exactly? Amazon Lending is a short-term loan offered exclusively to Amazon sellers anywhere between $1,000 to $750,000. Although they’ve been offering loans since 2011, they partnered with Bank of America in 2018 to strengthen their lending infrastructure. If you’re thinking about getting a small business loan from Amazon, here’s what you should consider:
You Need an Invite
The first thing you need to know is that you can’t just apply for an Amazon loan like you would at any other bank. Amazon Lending is available by invitation only. Furthermore, Amazon loans are only available to businesses who sell their products on Amazon. If Amazon thinks you could benefit from a loan, you would see Amazon Lending widget appear directly on your Seller Central account.
Although there are several eligibility factors, these factors are not publicly available. However, the greatest indicator of eligibility appears to be past sales. If Amazon notices you have consistent sales (even if those sales aren’t sky high) and are a seller in good standing, there’s a good chance you might be invited.
Credit Doesn’t Matter
If you’re a seller with bad personal or business credit, Amazon Lending could be your best option because Amazon doesn’t consider credit in its eligibility criteria. They do not run credit checks at all; instead, they focus on your reputation and performance on the platform. However, because this form of financing still operates like a traditional loan, it can help build—or hurt—your credit in the future.
Terms & Interest Rates
If you’re a business owner that just needs a little cash to get to the next step and are confident you can repay it quickly with sales, Amazon Lending is a good choice. However, if you’re running your own business with a proprietary product that you’re manufacturing and distributing, and you need money to support those costs for the next 3-5 years, you may be better off exploring other financing options. Amazon focuses solely on short-term financing options and they expect to be repaid within one year.
Amazon doesn’t report its interest rates, but based on seller reports, Amazon APRs are historically lower than those you might find on a credit card. According to WalletHub, the average credit card has an APR of 18.24%. Amazon, by comparison, offers APRs between 6% and 16%.
In most financing solutions, you’re responsible for paying your lender back. If you don’t have the funds to do so, it could affect your credit or result in repossessions. However, Amazon works a little differently; they deduct your monthly payments directly from your profits. If you don’t have enough sales, they take the money from your linked card(s). This might feel a little too invasive to some, but for others, it eliminates the guesswork and reduces the chance of making a missed payment.
Similar to a merchant advance, Amazon deducts a fixed percent from your gross sales. But unlike a merchant capital company, the amount Amazon deducts stays the same, no matter how much or how little you make. If you’re a seasonal seller or a seller who tends to see historical dips in sales around a certain time, this could be a troubling situation for you. It’s important to look at your sales data to determine how much you could realistically afford to forfeit in automatic deductions.
At the end of the day, Amazon Lending could be a great choice if you have a strong track record on the platform, are building your credit, or need money quickly. If invited to a loan, you’ll receive the funds within 24 hours, and there’s no need to go through a long and arduous paperwork process. The entire lending solution is fairly simple.
However, if you need a partner to build a company of your own (versus building a company for Amazon), require long-term repayment options, or want more control over how you repay your money, Amazon Lending wouldn’t be a good choice. Instead, you should consider working with a business plan writer who can help you flesh out your strategy and finances and secure funding through other methods. To sum it up, always weigh the pros and cons before you click your “Amazon Lending” widget—if it appears.