03 Nov Making Sense of Funding Options for Amazon Sellers: 5 Options You Should Know About
Whether you are getting started or are ready to take your business to the next level, identifying the right financing solution is a critical step. Funding for Amazon sellers ranges from traditional business loans to growth capital funding built specifically for e-commerce brands. This article will cover five funding options and considerations for each. You will find that new lending companies have emerged where traditional lenders fell short, creating more financial solutions than ever for e-commerce business owners.
Why is capital important for business?
Capital is the lifeblood of business. It pays for the components that make a company run and enables you to meet customer expectations, fulfill orders, and achieve growth. Whether capital comes from personal connections, Amazon, VCs, banks, or growth capital providers like Yardline depends on your needs. Before getting started, outline your requirements and limitations. This exercise will determine the appropriate loan structure and agreement for your business.
Why Funding is Needed for Amazon
According to a survey conducted by the Better Business Bureau in 2020, cash flow and meeting customer expectations were among the top challenges facing BBB accredited businesses. Inventory is one of the highest costs for online brands, especially when companies anticipate shipping delays or supply shortages—both common issues due to the pandemic. To overcome these challenges, business owners must hold larger quantities of inventory and place orders much earlier to ensure they can meet demand.
Another consideration is ad spend. Amazon is saturated with merchants, making investments in advertising necessary to compete and capture your audience’s attention before they complete a purchase. Amazon seller funding is vital to hitting your goals and ensuring the smooth operation of your business.
How do you get capital to grow an Amazon business?
Financing for Amazon sellers could come from many sources. The important step is determining which is the best for your company. Not all options will be available to you depending upon your financials and credit score, business history, and desired loan and repayment terms.
Friends & Family
Often, owners of nascent businesses lack the financial profile required by traditional lenders. So, they turn to friends and family. While this is a more accessible source of financing, it comes with inherent risks that must be weighed. Ask yourself, is the loan worth potentially damaging relationships or creating negative feelings between you and your loved ones?
In recent years, crowdfunding has become a viable alternative for many companies—especially those with a robust social media presence, an active email list, or supportive networks. If you choose this option, leverage it to raise brand awareness and build excitement and engagement with your brand. However, remember that you will need to come through on your promises to donors, so keep them reasonable. Also, consider that if the project fails, it does so publicly. Devise a plan for handling that situation while maintaining enthusiasm about your brand.
Amazon Seller Financing
Amazon offers its own financing program to Amazon retailers with loans ranging from $1,000 to $750,000. Qualifications for the Amazon seller lending program vary, but companies can typically expect to present six months minimum merchant sales history and minimum average monthly sales of $5,000.
The primary benefit is the simple application since Amazon has access to your information. The Amazon algorithm makes the qualification decision and sets your interest rate, which sellers report ranges from 6% to 25%. If approved, payments are made from your merchant account over time.
However, a significant limitation in the Amazon seller financing agreement is that the money can only be used on inventory for your Amazon merchant account. If that is your only goal, Amazon lending may work. However, if you need funds for other business purposes, look elsewhere.
Venture capital (VC) funding is often discussed as a primary way to launch a new business or grow an existing one, thanks to popular TV shows like Shark Tank. However, less than 1% of startups actually raise venture capital funding. If your company is one of the few offered a VC deal, pause to consider your priorities.
While the VC route may enable business owners to access funds without meeting bank requirements, it isn’t without sacrifice. Most VCs will expect equity in exchange for their investment. How much equity will determine your decision-making power and long-term control over your company.
Small Business Loans
Traditional business loans often require significant paperwork, excellent credit, and an established sales history with proven success. This typically eliminates new companies. It also poses a problem for many business owners with lower credit scores resulting from bootstrapping their companies with personal credit cards. These are just a few reasons why many modern e-commerce businesses are seeking alternative financing solutions.
Growth capital is one such lending alternative. The funding structure, repayment plan, and qualification standards are all tailored to the exact needs of Amazon sellers. Growth capital provides up to $1 million in funding without taking an equity position in your company. The application takes 3 minutes, and approval is quick—as fast as 24 hours. Business owners maintain flexibility as this funding can be used for any business purpose and on any platform. Repayment is easy since it is based on a percentage of revenue, so you’re never stuck with a high bill in slow seasons. Yardline is an example of a growth capital firm explicitly built for e-commerce. In addition to funding for Amazon sellers, many companies also offer advising and support services.
Funding for Amazon sellers is crucial as business owners invest heavily in marketing to compete for attention and carry substantial inventory to protect themselves from disruptions. The pandemic has heightened the demand for alternative funding options as more businesses shift to e-commerce and new brands emerge. The secret to finding the right financing option for your business is to consider your needs, limitations, and timeline. Select an option that mitigates your risks and positions your company for success.