Guest post by Kevin Weeks from Payability
As an Amazon seller, you’ve likely encountered a need for growth financing — whether to buy more inventory, expand your product line, or grow your team. Finding the cash to invest in these areas is another story.
With Amazon’s typical two week payment delay, it can feel difficult to move quickly enough to scale your business. After all, how can you reinvest in growth if you don’t have a readily available source of cash?
The simple answer is external financing — but what type? The small business lending landscape is vast, and what works for one Amazon business won’t necessarily work for another. So what’s best for your business?
Take a look at these five common financing options to see which one could fit best for your growing company.
#1. Self-Fund – Personal Savings and Credit Cards
You’re a new Amazon seller and you’ve hit the jackpot with a product that’s flying off the shelves. You’re approaching (or have already hit) an Amazon stockout and don’t want to lose momentum.
Most early stage Amazon sellers (and most startups in general) rely on their personal savings or credit cards to finance their early growth. In some cases, this is their only option — without enough sales history, lenders won’t even consider their applications.
Pros: Funds are available immediately and, as long as you don’t carry a credit card balance, the cost of funds is free. If your credit card offers a rewards program, you’ll be able to cash in there as well.
Cons: Unfortunately your savings account isn’t an endless pile of cash, and credit cards have spending limits. If you’re using a personal card (vs. a business credit card), you are putting your personal credit score at risk, which could make it difficult for you to get business financing in the future.
#2. Ask Others – Crowdfunding, Friends & Family
You’re a new private label seller with a tested product that you’re confident will sell well, you just need help investing in acquiring, packaging, and marketing it.
If you’re new to the Amazon Marketplace and are unable or unwilling to self-fund the launch of your business, you could ask others — either anonymously through a crowdfunding platform like Kickstarter or Indiegogo or by asking a family member or close friend to help cover costs.
Pros: Depending on the route you take here, the cost of funds could be nothing — or you could “pay” by giving equity or rewards to your investor(s).
Cons: There’s no guarantee you’ll raise money. With crowdfunding, you have to set a fundraising goal and, for most, if you don’t hit that goal you don’t get anything. And because mixing business with pleasure has its risks, your friend or family member may not feel comfortable giving you a loan.
#3. Traditional Financing – Bank Loans & Lines of Credit
You’re a veteran Amazon seller with a track record of winning (and keeping!) the Buy Box. You want to expand your product line, hire an employee to help you keep up with growing demand, or sign up for FBA.
Banks offer business financing in the form of term loans (large lump-sums of cash) and lines of credit (revolving pool of funds to draw from as you need).
Pros: Large loan amounts and low interest rates.
Cons: The application process is time-consuming and requires a lot of paperwork, including bank statements, business plans, tax returns, etc. They need to see that your business has a steady track record of making money, so early stage businesses are rarely approved. And, they put a lot of emphasis on the business owner’s FICO score, so if you have average or low credit, your chances of approval are even lower.
4. Online – Alternative Lenders
You’ve been selling on Amazon for a few years and, even though you have a track record of steady sales and profits, you used your personal credit to get your business off the ground and it’s still too young to qualify for a bank loan.
The small business lending landscape has expanded drastically in the last decade due to alternative online lenders who rely on big data and sophisticated technology to help businesses get financing more efficiently than banks can. Depending on the provider, you could get a term loan or line of credit.
Pros: Online lenders promise a simple, often paperless application and fast funding, with the entire process lasting anywhere from one day to a couple of weeks. They also don’t rely as heavily on your personal credit score — it’s a factor, but not a leading one.
Cons: This fast, efficient service comes with a price. Interest rates are high, terms are short (sometimes as short as 3 months), and payments are auto-debited on a daily or weekly basis.
#5. Amazon Specific Solutions – Amazon Loans and Advance Income
You’re an established Amazon seller with steady (and growing!) sales, and you’re looking for a simple solution that won’t take up too much of your time, or cost you an arm and a leg.
Amazon sellers now have financing options that are designed specifically for them, including Amazon loans and Amazon receivables financing from companies like Payability:
- Amazon Lending offers loans for its sellers on an “invite only” basis. If you qualify, you’ll get an offer in your Seller Central account. The offer includes a fixed loan amount and rate, so you can’t negotiate for something else – you either accept or decline it. This is not a loan you can apply for, either.
- Payability pays you your Amazon income one business day after you make a sale, so you don’t have to wait the typical two weeks for payment. It’s like a modern invoice factoring company that collects a small flat fee and, like alternative lenders, the process is simple and efficient.
Bonus: This is more retail-specific than Amazon-specific, but you can always negotiate your payment terms with your suppliers. For example, if you give them steady business and have a proven track record of on-time payments, you may be able to get better pricing or increase your net terms from 14 days to 90 days.
As you can see, there are several different ways to get funding and maximize your cash flow so you can focus on growing your business.
If you’re still not sure which one is right for you, you can always take this Fundability Quiz from BusinessLoans.com to get a sense for the types of credit that might work for your business, and who provides them.
And, if you’re interested in learning more about how Payability could help your business grow, visit Payability. We help Amazon sellers like you every day get the cash flow they need to invest in growth.
