Amazon is the giant among giants and its star isn’t going to go down anytime soon considering the fact that online retail is only getting stronger. Moreover, Amazon keeps applying itself in new industries, thus increasing its streams of revenue. This is a lesson that every business should learn, but few other companies have the cashflow they can leverage to start up their own financing program.
However, Amazon most certainly does, and it even partnered up with Bank of America to take this program a step further.
Amazon Lending provides sellers with a fantastic opportunity to get a working capital loan on terms that are much better than what a bank could offer. However, to make sure that this deal isn’t “too good to be true”, this financing option has some big restrictions.
What Is Amazon Lending Exactly and Who Can Use It?
In essence, Amazon Lending is a type of short-term loan offered by Amazon to a select group of its sellers. Entrance into this program is by invitation only, so unless your sales through this platform meet the requirements and Amazon itself considers your business a worthy investment, you won’t be able to get this financing.
Amazon sellers can apply for a proposal, but there is no guarantee that they will receive the loan as Amazon has its own special formula to evaluate risks. It also uses custom formulas to calculate interest rates for every individual seller. According to an independent Amazon Lending review, the rates on offer are much better than what a traditional bank or some other popular short-term lending platforms offer. Therefore, for the millions of Amazon sellers this lending program presents a fantastic opportunity.
A Working Capital Loan
However, one shouldn’t forget that Amazon Lending is a working capital loan. This means that its size is based on your sales. And only your sales through Amazon count for this loan. Therefore, despite the fact that the maximum loan amount is reported to be $750,000, you might not be able to get a lot of money if your Amazon sales aren’t high enough.
Also, bear in mind that Amazon will examine your sales data for the last six months. You won’t be eligible for this loan by default if you’ve been with the platform for less than that. How successful your business is in general won’t matter for Amazon Lending.
The good side is that you don’t have to try to impress Amazon with your application as you would traditional financing sources. It has all your relevant data and will conduct the evaluation without your involvement. This makes the process of filing for this loan one of the easiest. If only it wasn’t restricted to long-term Amazon sellers with good standing.
Amazon’s Financing Program has Grown Rapidly
Amazon launched this financing program back in 2012, starting with only the USA and Japan, its biggest markets. However, the service became popular fast and it eventually expanded to India, Canada, China, as well as the UK, France, Spain, and Italy. The coverage is expected to grow further.
This lending program managed to become very popular very fast, but the interest in it has gone down significantly over the last couple of years. However, it still finances Amazon sellers for over $1 billion a year.
Why Amazon Lending Is a Fantastic Opportunity for Small Businesses
Small businesses are the ones that can benefit the most from Amazon Lending because it’s an established fact that they have a hard time getting financing in general. Getting a good loan is even harder because short-term financing solutions, which have more lenient eligibility requirements, have draconian terms to offset those.
In the end, a small business often struggles to get the money it needs to keep running, let alone innovate and improve. From this point of view, any kind of attainable small business loan is a great opportunity by default. And Amazon Lending also has the side benefit of having lower interest rates than the majority of small businesses can hope to get.
Ideal for Businesses Seeking Stability
Yes, the maximum term of the loan is only 12 months and interest rates, probably, won’t be the lowest you can find. However, the fact that eligible Amazon sellers can rely on this financing is worth a lot to the companies that need some stability.
Moreover, there’s information that Amazon doesn’t claim your loan payments in a traditional way. Instead, it increases the percentage it takes from the sales. This might be an important advantage or a disadvantage, depending on your sales volumes and business plans. The exact terms of the loan will be explained to those who are lucky enough to get the invitation to this lending program by Amazon.
Why Amazon Lending Isn’t the Ultimate Financing Solution for All
The first reason why Amazon Lending isn’t a commonly used type of financing is that it’s available by invitation only. Of course, there are millions of eligible Amazon sellers, but there are many more small online retailers who are unable to get this financing by default. Unless it becomes universally available, this financing program won’t be able to become one of the top options globally.
You also should understand that even among those who are eligible, not all business owners choose Amazon Lending. That’s because the terms, while better than average, aren’t always the best. In fact, there are many disgruntled sellers complaining about Amazon’s interest rates on forums.
Those business owners who have alternative financing options will definitely choose something they can trust over Amazon’s offer, regardless of how appealing it might seem at first glance.
All things considered, Amazon Lending is a great financing program that offers much promise both to Amazon and to small businesses it’s created to finance. The availability of the loans, as well as their terms, should improve to make Amazon one of the leading players on the online retail financing market.
However, as this industry will definitely grow in the future, Amazon might take these steps and become a giant of a banking service. There can be no doubt that online retail financing is one of the most lucrative industries as the growing globalization and digitalization of the world make online shopping infinitely more relevant and popular.
This means that expanding to this area of business can be a very smart move. And Amazon is known for being innovative and in-tune with trends. Therefore, sellers should be on the lookout for financing options coming from this source.