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As one of the nation’s most trusted businesses, it makes sense why many small business owners use Amazon to expand into the e-commerce industry. However, in the competitive world of online selling, it’s necessary to have enough working capital to run your Amazon business.
Financing for Amazon sellers can be challenging to secure since online businesses tend to have fewer assets for collateral than brick-and-mortar businesses.
Fortunately, there are alternative funding opportunities for e-commerce business owners, even if you’re new or don’t have a credit history. In this guide, we’ll help you identify and compare the best financing options for your Amazon business.
1. Business Line of Credit
A business line of credit provides online retailers with quick access to cash up to a pre-approved limit. Unlike traditional loans, this type of funding allows you to easily borrow capital for almost any business purpose, including marketing your brand, restocking inventory, and more. The best part is that interest is only charged when you use the funds.
From filling cash flow shortages to covering operating expenses, lines of credit come in handy for e-commerce business owners who need short-term funding to help with cash flow management. Since limits are based on how you handle your account funds responsibly, having a line of credit can help you build up your business credit.
Pros:
- Fast approval rate, possible within 48 hours
- Charges interest only on used funds
- Can help improve credit score
Cons:
- Various fees, such as origination and monthly maintenance
- Higher interest rates than traditional loans
2. Inventory Financing
With inventory financing, you can receive funding for your Amazon business using your products as collateral. Inventory financing works like a revolving line of credit, providing the working capital you need up to 100% of your assets’ value. These can be business assets like equipment and products or personal assets like a car.
This loan type is available for both small and midsize businesses, including those with bad credit. With most online lenders, you can qualify for inventory financing as long as your company has at least six months in business operations, over $10,000 of gross revenue per month, and at least a 550 credit score.
Pros:
- Flexible payment, you borrow capital as needed
- Easy and quick application process
- Funded up to 100% the value of assets
Cons:
- Funds based on collateral value
- Higher interest rates than traditional loans
3. SBA Microloan
An SBA microloan is a smaller loan funded by the U.S. Small Business Administration (SBA) and one of the only affordable small business loans that specifically target startups. Both new and existing businesses can borrow up to $50,000, with repayment terms generally between one and six years and interest rates between six and nine percent.
Rates you pay depend on the program you choose, the amount you borrow, and the term length. With the capital you receive, you can purchase new inventory, office equipment, and most business expenses. You just can’t use it to pay off debts or real estate.
As a new Amazon Seller, you can submit a financial projection, which shows the lenders what products you’ll sell and how you plan to repay the loan. Lenders generally require collateral as security if you can’t pay them back.
Pros:
- Both startups and established companies are eligible for up to $50,000 funding
- Don’t require a minimum credit score
- Low fees and interest rates + long repayment terms
Cons:
- Long application process (b/c of extensive business documentation)
- Can only use for biz expenses (not paying off debt or real estate)
- Must provide collateral
4. Short-Term Loan
Short-term loans are the most popular way to fund small businesses. They’re a fixed amount of financing with predetermined interest rates, and you make monthly payments to repay the loan. Additionally, short-term loans don’t require collateral and are easier for borrowers with bad credit to get approved.
If you’re lacking funds to restock inventory or cover shipping costs, short-term loans are quick working capital you can tailor to your needs. Though term loans from banks tend to have higher fixed interest rates, online lenders have less strict eligibility requirements and can offer better deals.
Pros:
- Quick access to a lump-sum of capital
- Tax-deductible interest payments
- Fixed term rates and no collateral needed
Cons:
- Higher interest rates
- Shorter, more frequent repayment schedule
5. Merchant Cash Advance
With a merchant cash advance (MCA), you’ll receive an upfront lump sum payment in exchange for a percentage of your Amazon business’ future sales. This alternative financing option is fast, easy money for online sellers and doesn’t require collateral. You can typically receive cash disbursement in less than 72 hours, making it ideal for sellers who have predictable sales but need immediate cash.
To qualify, lenders typically look at six months of your merchant account statements and offer up to 30% of what you’re processing annually. Since your personal credit isn’t a factor, you can get approved for many MCAs with a 500 credit score. Some MCA lenders also have no credit requirements, so it’s easy to get approved with proof of adequate business cash flow.
Pros:
- Easy and fast approval for upfront cash
- Repayment based on business sales
- No collateral or credit score required
Cons:
- Shorter, frequent repayments
- Higher interest rates than traditional loans
6. Credit Cards
The best thing about business credit cards is that almost anyone with a business can qualify for it, especially startups and businesses with bad credit. You also don’t need any assets to serve as collateral. When you can’t qualify for any other type of business loans, you can use credit cards for your Amazon business needs.
Since you build credit with business credit cards, using them can help you qualify for higher-limit credit cards in the future, as well as other types of business loans. Just mind the credit limit and payback cycles, which can be challenging to manage during low sales.
Pros:
- Easy to obtain
- Helps build credit
- Familiar and convenient payment method
Cons:
- High-interest rates and late fees
- Short repayment term
7. Amazon Lending
Amazon also directly offers loans to Amazon sellers through its own lending program, Amazon Lending. This is an invite-only program for top-tier Amazon sellers to help grow your business. Amazon doesn’t disclose these details publicly online but instead will send you a loan offer via email or through your Amazon Seller Central portal if you qualify.
Many businesses report that Amazon Lending offers up to $750,000 with repayment terms of three months up to two years and interest rates that range from three to 18%. There are various financing options within Amazon Lending, including term loans, interest-only loans, and merchant cash advances (MCAs). Note that you still have to apply, as an Amazon loan offer isn’t guaranteed.
Pros:
- Fast approval and disbursement
- No credit checks or application fees
- Low interest rate
Cons:
- Invite-only program
- Late fees and additional interest if missed payments
- Typically short-term loans with high monthly payments
How to Use Funding for Your Amazon Business
Cash flow issues and seasonal dips are two common problems among small business owners, including online sellers. It’s important to consider these needs and have a plan for spending the funds before applying for a business loan.
Here are a few ways to strategically use your funds to both protect and grow your Amazon business.
Stock Inventory
Having extra inventory is critical during high-demand seasons. Using funds to stock up on inventory can help maximize sales potential.
Advanced Software
Take advantage of e-commerce software to streamline tasks and boost productivity. Many platforms have multifunctional solutions, including inventory and order management, bookkeeping, and payment options.
Staff Recruitment
As your business grows, so will your need for extra hands. With funding, you can hire additional staff to delegate tasks and assist with shipping.
Website Design
When selling products online, your website needs to stand out from competitors. From a site redesign to professional product photography, you can use the funds to improve the look and feel of your online presence.
Emergency Funds
When unexpected expenses arise, you’ll need a financial cushion. Loans can serve as the working capital you need to maintain financial stability.
Frequently Asked Questions
Is it hard for Amazon sellers to get financing?
It can be more challenging for e-commerce businesses in general to acquire bank loans, since most banks generally work with brick-and-mortar businesses. Having a detailed business plan to demonstrate the financial projection of your Amazon business can help you look favorable to many lenders.
What financing option is best for my Amazon business?
Determining which type of funding is best for you will depend on your business’s unique situation and goals. For example, if you need assistance with managing cash flow, a business line of credit is a considerable option. On the other hand, if you need a one-time, lump sum of cash and have predictable sales, a merchant cash advance (MCA) may better suit you.
What if I don’t qualify for a loan?
There are several types of business loans available for those with bad credit, which are fairly easy to qualify. However, in the unfortunate event you’re still unable to get a loan, there are alternative financing options such as business credit cards, as well as alternative funding methods like crowdfunding.
Can I use a personal loan to fund my Amazon business?
Yes, it’s possible to use the funding from a personal loan to cover business expenses. However, understand that business loans tend to have much higher lending limits than personal loans and may not require using your personal assets as security.
Secure Funding for Your Amazon Business with Clarify Capital
E-commerce is still a fairly “new” concept to banks, which can make it hard to qualify for loans with traditional lenders. Nevertheless, alternative lenders are more accustomed to financing unique small businesses like Amazon sellers.
Online lenders like our Clarify Capital team take a unique approach to determining your eligibility, understanding the needs and challenges of an e-commerce business. Through our network of 75+ lenders, we help online retail business owners fund and secure the best funding for their needs.
Emma Parker
Senior Funding Manager
Emma holds a B.S. in finance from NYU and has been working in the business financing industry for over a decade. She is passionate about helping small business owners grow by finding the right funding option that makes sense for them. More about the Clarify team →
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