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Is Amazon Lending the Best Choice for You? Here’s How to Know

Georgia McIntyre

Georgia McIntyre

Finance Writer at Fundera
Georgia McIntyre is the resident Finance Writer at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Georgia? Comment below!
Georgia McIntyre

We’re willing to bet that (virtually) everyone knows the e-commerce giant Amazon—but do you know about the Amazon Lending program? Yes, since 2012, Amazon offers small business loans through their Amazon Lending program!

You might not have known it, but if you sell your small business’s product on Amazon.com, you might qualify for their Amazon Lending loan program. And recently, Amazon partnered with Bank of American Merrill Lynch to expand their funding capacity even more. Clearly, the online lending platform has so much clout that even the banks want to be involved.

You might want to get involved in financing a business with Amazon, too. But, as with any business financing option, you need to consider whether an Amazon loan will really work for your small business. Here’s the low-down on Amazon Lending—and whether or not it’s right for you.

What Is Amazon Lending?

Before we get into the details of Amazon Lending, let’s cover the basics of this loan program.

Why Was Amazon Lending Started?

There are an estimated five million sellers on Amazon’s platform, including Amazon Marketplace. And a lot of those sellers are small businesses—which means a lot of those sellers will also need of small business financing at some point.

But every small business owner knows that securing a loan can be challenging. If you try to go through a bank, it’s pretty likely that your application will be rejected. Yep, about 80% of small businesses that apply for commercial bank loans get denied.

And it’s definitely true that alternative lenders have largely opened up credit access for small business owners. Still, applying for a business loan can take a lot of time and effort. So, in 2012, Amazon came up with an answer for their marketplace sellers who struggle to access the financing they need: Amazon Lending.

Through their lending program, the online retailing giant offers business loans from $1,000 to $750,000 for registered Amazon sellers. So far, it seems that Amazon’s latest venture has been a hit. In June 2017, CNBC reported that Amazon Lending provided $1 billion in loans during the previous year alone.

Who Can Get a Loan From Amazon Lending?

Unlike other loan products, Amazon Lending is only an option for small business owners who sell on the Amazon marketplace.

So you can’t simply apply to Amazon Lending. You’ll first need to register as an Amazon seller, set up your seller’s account, and start selling your items through Amazon’s marketplace. Then, if Amazon deems you a good fit for their financing service, they’ll reach out to you. Yes, you read that right: you have to be invited to participate in Amazon’s loan program.

And if you do choose to participate in Amazon Lending, the loan you can expect to get might look a little different from your usual short-term business loan.

How Does a Loan From Amazon Work?

A loan from Amazon Lending is closely modeled after a merchant cash advance. Amazon advances you a lump sum of cash that you’ll repay by letting the company cut into your Amazon sales. But an Amazon Lending loan is, in reality, a short-term loan. Let’s take a look at an Amazon loan’s defining characteristics. 

Amazon Lending Loan Terms

Amazon Lending only offers short-term financing solutions, so repayment periods on Amazon loans are capped at 12 months.

Amazon Lending Loan Interest Rates

Amazon hasn’t disclosed exact interest rates for their Amazon Lending product, but they’ve said that Amazon Lending’s loan rates are lower than most business credit cards and merchant cash advances.

For more context, credit cards usually carry a 14-20% APR. APRs on merchant cash advances start at around 15%, but they can reach into the triple digits. Sources say that Amazon’s loan rates generally range from 6% to 16%, but you’ll have to wait for your loan invitation to know exactly what your rate is.

Loan Amounts from Amazon Lending

The loan amounts offered by Amazon Lending vary significantly. The company can offer loan amounts from as little as $1,000 to as much as $750,000. Sellers can choose to accept either the full amount they’re offered or less.

Repayment Terms with Amazon Lending

In order to pay back their loans, borrowers in the Amazon Lending program make fixed monthly repayments. And the repayment itself is actually out of the seller’s hands—Amazon will automatically deduct the payment from the seller’s Amazon Seller Account. (You’ll never have to worry about making a late payment, so long as your store is making the sales you need.)

Like a merchant cash advance, Amazon automatically takes a fixed percentage of gross sales from your Seller Account each month.

But if you have an MCA, the merchant capital company will take less from your account if you’re making fewer sales one week, and more if you’re having a high volume week the next. With Amazon Lending, on the other hand, the lender will just collect that fixed percentage from your Sellers Account each month until the loan is repaid—no matter how well or poorly your sales on Amazon are doing.

Time to Funding with Amazon Lending

Just like short-term loans, financing from Amazon Lending has a pretty speedy time to funding. Sellers can be approved in as few as 24 hours. Once you’re approved for your loan, the capital gets advanced directly to your Amazon Seller Account.

How You Can Use an Amazon Lending Loan

If you’re invited to apply for an Amazon Lending loan, know that you’re restricted in what you can use that loan for. There’s really only one accepted use of funds—to replenish or augment your Amazon inventory.

Which Amazon Sellers Qualify for Amazon Lending?

By now, you know that you can only get a loan from the Amazon Lending program if you’re an Amazon seller.

But not just any Amazon seller—the company extends loans to sellers the company thinks are in the best position to use the funding to grow their business. Eligibility is based most heavily on the candidate’s sales history, maintenance and restocking of inventory, customer service ratings, and other algorithms related to the seller’s site activity.

Note that Amazon doesn’t require all of the same information as most lenders, like your bank statements, annual revenue, tax returns, and so on.

→Too Long; Didn’t Read (TL;DR): Amazon Lending is only available for small businesses who are registered Amazon sellers. Only the most eligible sellers will be invited to sign up for a loan. Amazon offers short-term funding, and collects repayment by automatically debiting a fixed percentage of the seller’s gross monthly Amazon revenue.   

Why You Should Use Amazon Lending (or Not)

Before you sign on the dotted line for any business loan, you should know exactly what the financing option will mean for your business. Here’s why you might want to take out a loan with Amazon Lending, along with why you might be hesitant to use the service, too.

Amazon Lending: The Pros

Here’s why you might want to sign on for a loan from Amazon Lending (after you’re invited to, of course)—and why you should be using Amazon for your small business in the first place.

1. Take Advantage of Amazon’s Marketplace

In order to qualify for financing from Amazon Lending, you’ll need to register your business as a seller on the marketplace. And if you haven’t already done so, you probably should! If you’re already selling your small business’s products online, setting up an Amazon Seller Account is an especially smart idea.

As of last year, Amazon websites were fetching 197 million unique visitors per monthHow much traffic does your business’s website get a month? Unfortunately, it’s probably not even close to as much as Amazon gets.

When you look at the data, it’s pretty obvious why you should be listing your product on Amazon. Plus, you’ll access Amazon’s review system, which many consumers consider closely when they’re buying products online. If you’re a customer service-focused business, you can use Amazon’s reviews system to prove how great your small business really is.

2. Easy Application Process

Any small business owner who has applied for business financing knows that the application process itself is a challenge.

First of all, you have to compile a variety of business loan requirements. These include your personal and business credit report, bank statements, balance sheet, profit and loss statements, and tax returns, just to name a few. As you can imagine, this takes time and effort that not every busy small business owner has to spare.

But the Amazon Lending application isn’t nearly as involved. Your invitation to the lending program will appear via the Seller Central homepage and your email. Then, you can accept, decline, or amend the loan amount directly on the invitation’s portal. And since Amazon really only cares about how your business performs on Amazon itself, they don’t request information like your credit score, tax returns, time in business, or financial profile—and there’s no need for you to scramble to get the required documentation together.

3. You Don’t Qualify For Other Loan Products

When your business needs financing, you might be finding yourself in a common situation for small business owners: you took the time to apply, but you’ve been rejected by the lender.

For some loan products—like traditional term loans, bank loans, or SBA loans—only the best borrowers qualify. If your credit score and bank statements aren’t where they need to be, you might be out of luck.

Amazon Lending can be a great option for Amazon sellers who don’t qualify for other small business loans. As long as you can prove your performance on the Amazon Marketplace, you might qualify for a loan from the company.

4. Lower Interest Rates

Similar products, like short-term loans and merchant cash advances, have interest rates that can get sky high. So when you compare the interest rate on loans from Amazon to those on other loan products, Amazon Lending is a pretty good deal.

With Amazon Lending, the maximum interest rate you can expect is about 16% on a loan with a 12-month term.

But remember, even if you’re getting a low interest rate on your loan, you’ll still want to make sure it’s worth it. Are you confident that the revenue you’ll get from selling more inventory on Amazon will outweigh what you’ll have to pay Amazon back, plus interest? If so, taking out a loan with Amazon Lending makes sense.

5. Fewer Fees

Small business owners looking for financing should be wary of the various fees that come along with their loan—origination fee, application fee, closing fee, prepayment penalty, and so on.

But with Amazon Lending, you won’t have to pay an origination fee. You also won’t have to worry about a prepayment penalty, which is a fee that some lenders collect if you pay off your loan early. It might sound odd to be punished for paying off your loan ahead of time, but what you’re paying back comes padded with interest, and lenders make a profit by what you pay in that interest.

So, if you pay back your loan three months early, your lender is losing three months’ worth of interest on your loan.

With Amazon Lending, there’s no need to worry about that prepayment penalty. If you pay Amazon back early, you’ll save on your loan in the long run.

→TL;DR: Amazon Lending is easier to qualify for and apply to than most types of small business financing. It also carries lower interest rates and no added fees. Plus, eligible candidates can maximize Amazon’s platform to supercharge sales. 

Amazon Lending: The Cons

As with any small business loan, Amazon Lending also a few downsides to counter the upsides. These might convince you to pursue other options. Before you commit to financing with Amazon Lending, consider these disadvantages.

1. More Dependence on Amazon

The Amazon Marketplace can be a fantastic platform for small businesses to sell their products. But financing aside, selling on Amazon has some downsides.

There are so many reasons to start your own company, but one of the perks of owning a small business is the ability to be your own boss and control your company’s decisions. When signing up for an Amazon Seller Account, many business owners find that they struggle to maintain the ability to build their own brand.

Selling on Amazon emphasizes the products sold, rather than the company that sells them. A consumer could easily know everything about the product that they just bought on Amazon, but not even remember the name of the company that made it. Essentially, Amazon gets the credit for providing a stellar product—not your business.

If you already feel a lack of control from selling through Amazon, accepting a loan from the company would only add to it. When you choose to work with the Amazon lending program, you’re now indebted to the company. 

This isn’t necessarily the case with other lenders. Because when small business owners borrow from Amazon Lending, they’re not only depending on that lender to provide the money they need to operate their business, but they’re relying on the lender to provide the marketplace to sell their product.

2. (Extremely) Limited Use of Funds

Most short-term loans may be used to finance any aspect of your business: bolstering payroll, updating equipment, mitigating cash flow issues—and we’re sure you can name many more. But loans furnished by Amazon Lending can only be used toward building up or restocking inventory on products sold on Amazon.

It’s an inflexible loan, which won’t suit the needs of most small business owners.

3. Fixed Deductions From Your Amazon Seller Account

Amazon already charges you for each sale you make on their marketplace. And if you’re a larger seller, you also have to pay a monthly membership fee.

And once you take out a loan with Amazon, the company is cutting into even more of your sales through the marketplace. To collect repayment on your loan, they’ll automatically deduct a fixed monthly amount from your Amazon Seller Account.

Amazon will take the same amount of money from your account, no matter how well or poorly your sales are doing. So, if your account balance can’t keep up with the fixed monthly deductions, your business’s financials will take a hit.

4. Collateralized Loan

Like certain asset-based loans, your inventory will serve as collateral for your Amazon loan. So if you default on your loan, Amazon has the right to claim your assets to recoup the debt.

If you keep your inventory in an Amazon warehouse and allow Amazon to fulfill your orders for you, then Amazon can do one of two things if you fail to repay your loan:

  1. Hold your inventory hostage until you pay them back, or
  2. Seize your inventory and sell it themselves to get their money back.

And if you fulfill your orders yourself and default on your loan, your ongoing sales proceeds on Amazon.com will go directly to Amazon as repayment of your loan, rather than to your Seller Account.

→TL;DR: With Amazon Lending, you’ll have less freedom to sell your products through other retailers, inflexible use terms, deductions from your Amazon revenue, and the risk of losing your inventory in case you default on your loan. 

Is Amazon Lending the Right Business Financing for You?

As small business loans go, Amazon Lending is a pretty unique financing option. Loans from the online marketplace will only work for businesses who suit a specific profile.

If you do a majority of your business on Amazon and you need more inventory to keep up with orders, then using Amazon Lending makes a lot of sense… especially if you don’t qualify for other small business loan products.

But if you need financing to serve a whole variety of needs—both on and off the Amazon Marketplace—then you’ll be better served taking out a different loan product. There are many small business loan options, like short-term loans, lines of credit, business credit cards, or SBA loans, which much more spending flexibility than the Amazon-only loan.

Make sure you know the ins and outs of your Amazon loan offer and compare it to other financing options before you sign the dotted line. If Amazon offers you the lowest-cost solution that, most importantly, fits your business’s model and goals, it could be the best financing option for your small business.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Georgia McIntyre

Georgia McIntyre

Finance Writer at Fundera
Georgia McIntyre is the resident Finance Writer at Fundera. She specializes in all things small business finance, from lending to accounting. Questions for Georgia? Comment below!
Georgia McIntyre

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