Amazon Lending: How to Determine If an Amazon Loan Is Right for Your Business
Amazon Lending: An Overview
Amazon Lending is a program in which Amazon offers short-term business loans to qualified sellers so that they can finance additional inventory to sell through the Amazon marketplace. Amazon loans are invitation-only and amounts range from $1,000 to $750,000. Amazon Lending does not check credit.
Between their online marketplace, streaming service, and grocery delivery platform, there isn’t much that ecommerce giant Amazon isn’t involved in—and that includes business loans. Since 2011, Amazon has offered financing solutions for small business owners through their Amazon Lending program. In fact, in 2018 Amazon partnered with Bank of America to further support their lending initiatives.
If you’ve never heard of Amazon Lending, you’re not alone, Amazon doesn’t even actually have a landing page on their website for this program. This being said, however, if you sell your product on the Amazon marketplace, you might qualify for an Amazon loan. How do you know if you qualify for Amazon Lending? Does Amazon check credit? Is an Amazon loan right for your business?
We’re here to answer these questions—and more—with this guide. We’ll explore how Amazon Lending works, what their loan product looks like, and the pros and cons of using this financing option for your business. Let’s get started.
What Is Amazon Lending?
Before we get into the details of Amazon Lending, let’s give a brief overview of this program. As we mentioned above, Amazon Lending was started in 2011 as an initiative by the company to break into the small business lending industry and offer business owners a quick and easy financing option to expand their ecommerce operations.
Why Was Amazon Lending Started?
So, considering everything that Amazon already works on, you might be wondering more about the reasoning behind their decision to get involved in small business financing.
Let’s break it down.
Currently, there it’s estimated there are nearly 6 million sellers on Amazon’s platform—many of which are small businesses, who will likely need financing at some point to support their endeavors. As many small business owners can attest to, however, securing a loan, especially a bank loan, can be challenging.
To provide another option for small business owners, alternative online lenders have become extremely popular, offering a variety of loan products and opening up credit access for business owners who can’t get bank loans. With this type of need in mind, Amazon saw an opportunity to provide a solution for their marketplace sellers who struggle to access the financing they need: Amazon Lending.
Through their Amazon Lending program, then, the online retailing giant offers business loans from $1,000 to $750,000 for registered Amazon Sellers.
Who Can Get an Amazon Loan?
Now that we’ve discussed the philosophy behind Amazon Lending, let’s dive into the details about how this program actually works. First, who can get an Amazon loan? Currently, this program is only available to small business owners who sell on the Amazon marketplace.
Additionally, although Amazon Lending is specific to Amazon Sellers, you can’t simply apply to this program. The program is invite-only, meaning you can only take advantage of their financing if you receive an offer to do so from Amazon. Amazon sends these to sellers directly through their Seller Account.
How Does an Amazon Loan Work?
If you are an Amazon seller and you receive an invitation to participate in Amazon Lending, the loan you’re offered may look a little different from your short-term business loan. In essence, an Amazon loan is similar to a merchant cash advance in that Amazon advances you a lump sum of cash that you repay by letting the company cut into your Amazon sales. This being said, let’s explore the features of Amazon loans further:
Amazon Loan Terms
Amazon Lending only offers short-term financing solutions, so repayment periods on Amazon loans are capped at 12 months.
Amazon Loan Interest Rates
Amazon hasn’t disclosed the exact interest rates for their lending product, but they have said that Amazon loan rates are lower than most business credit cards and merchant cash advances. For context, credit cards usually carry a 14 to 20% APR, whereas APRs on merchant cash advances start at around 15%, but can reach into the triple digits.
Therefore, although we can’t say definitively what the Amazon loan interest rates look like, sellers report that they range anywhere from 6% to 16%.
Loan Amounts From Amazon Lending
Once again, with limited information available with regard to this product directly from Amazon, it’s difficult to say what a typical loan amount looks like. However, we do know that the company offers their Amazon loans within a range of $1,000 to $750,000. As you might imagine, with such a large range, the amount that you’re offered will depend on your business and the evaluation Amazon makes of your operations.
Repayment Terms With Amazon Lending
If you accept a loan through the Amazon Lending program, you’ll pay back these funds through fixed monthly payments. Unlike typical small business loans, however, the repayment is out of your hands—Amazon will automatically deduct the payment from your Amazon Seller Account.
One advantage of this repayment system, therefore, is that you’ll never have to worry about making a late payment, so long as your store is making the sales you need. If you don’t have enough funds in your Amazon Seller Account, however, to cover your payment, Amazon will charge the payment method linked to your account.
This being said, like a merchant cash advance, Amazon automatically takes a fixed percentage of gross sales from your Seller Account each month. If you had an actual merchant cash advance, though, the merchant capital company would 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, Amazon 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 are performing.
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 Amazon loan, the capital gets advanced directly to your Seller Account.
How You Can Use an Amazon Loan
One of the most important things to remember about Amazon loans is that not only is the program invite-only, but it also restricts what you can use the funding for. Essentially, the program is a form of inventory financing—you can only use the funds to replenish or augment your Amazon inventory.
What Are the Amazon Lending Requirements?
By now, you know that you can only get an Amazon loan if you’re an Amazon seller.
However, if you’re wondering what the Amazon Lending requirements are—in other words, how does Amazon decide who, of their sellers, is eligible for this program and, specifically, does Amazon check credit?—Amazon has not publicized this information. However, according to threads on the Amazon seller forum, sellers report that some Amazon Lending requirements include:
- Amazon selling history of at least 12 months
- Total sales of at least $10,000 in the past 12 months
- Customer satisfaction metrics
- No serious customer complaints in the past six months
- No outstanding copyright or trademark infringement complaints
- Compliance with Amazon listing style guides
Ultimately, then, Amazon extends their loans to sellers they think are in the best position to use the funding to grow their business. Therefore, Amazon does not require the same information as most lenders—bank statements, annual revenue, tax returns—and Amazon Lending does not check credit.
How to Decide If Amazon Lending Is Right for You
So, keeping in mind all of this information about the Amazon Lending program and how it works, let’s discuss how you can determine if an Amazon loan is right for your business.
Amazon Lending: The Pros
If you’re invited to take on an Amazon loan, here are some reasons you might decide to take it—as well as advantages to using Amazon to sell online 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. If you haven’t already done so, especially if you run an ecommerce business, you might seriously consider doing so.
As of 2018, Amazon websites were fetching over 200 million unique visitors per month. With all of this traffic, you’ll have a much greater opportunity to drive customers to your product than by simply running an online store on its own. Plus, as an Amazon Seller, 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 review system to help establish your brand and show customers how great your 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 meet 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, among other requirements. As you can imagine, this takes time and effort that not every busy small business owner has to spare—and, if your application is rejected, all that time and effort has gone to waste.
The Amazon Lending application, on the other hand, isn’t nearly as involved as it’s not much of an application at all. Amazon evaluates their sellers who they think are a good fit for Amazon loans and if you’re one of those sellers, they’ll send you an invitation. Your invitation to the 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.
Plus, as we mentioned earlier, since Amazon is only concerned with how your business performs on their platform, 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 find 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 have trouble finding financing.
This being said, if you’re wondering—”Does Amazon Lending check credit?”—the answer is no. As we discussed above, Amazon does not pull traditional financial information to determine your eligibility for their lending program. Therefore, 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 be extremely high. So, although we can’t say definitively what the Amazon loan rates look like, if you compare the information available regarding Amazon’s interest rates to those on other loan products, Amazon Lending is a pretty good deal.
Based on the information from other sellers, the maximum interest rate you can expect is about 16% on an Amazon loan with a 12-month term.
You’ll want to remember, however, even if you’re getting a low-interest rate on your loan, you’ll still want to make sure it’s worth the investment. 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, then taking out a loan with Amazon Lending might be a good decision. On the other hand, just because Amazon offers you a loan, doesn’t mean you have to take it.
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. Although it might sound odd to be punished for paying off your loan ahead of time, what you’re paying back comes padded with interest, and lenders make a profit by what you pay in that interest, and therefore, they don’t want to lose this profit opportunity when you pay your loan off early.
With Amazon Lending, however, there’s no need to worry about that prepayment penalty. If you pay your Amazon loan back early, you’ll save on the loan in the long run.
Amazon Lending: The Cons
Although Amazon Lending has notable benefits—it’s easier to qualify for, carries lower interest rates, and has no added fees—there are also a few downsides to keep in mind with this program as well. Therefore, before you decide to finance your business with an Amazon loan, you should 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 biggest 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, however, 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.
Therefore, 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, including online alternative lenders. When you borrow from another lender, you’re only depending on that lender to provide the money you need to operate your business—with Amazon Lending, on the other hand, you’re relying on the lender to provide you funds as well as to provide the marketplace to sell your 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 more. Amazon loans, however, can only be used toward building up or restocking inventory on products sold on Amazon.
As an inflexible loan, then, Amazon Lending won’t meet 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.
This being said, once you take out an Amazon loan, 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.
Plus, 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 secured-business loans, your inventory will serve as collateral for your Amazon loan. Therefore, if you default on your loan, Amazon has the right to claim your assets to recoup the debt.
Essentially, this means that if you keep your inventory in an Amazon warehouse and allow Amazon to fulfill your orders for you, then they can do one of two things if you fail to repay your loan:
- Hold your inventory hostage until you pay them back, or
- Seize your inventory and sell it themselves to get their money back
On the other hand, if you fulfill your orders yourself and default on your loan, your ongoing sales proceeds on Amazon.com will go directly to the company as repayment of your loan, rather than to your Seller Account.
The Bottom Line
At the end of the day, Amazon Lending is a pretty unique financing option as far as small business loans go. Since Amazon loans are only available to sellers on the platform and are also invitation-only, this type of financing is only applicable to business owners with a very specific profile.
This being said, if you do a majority of your business on Amazon and you need more inventory to keep up with orders, then using Amazon Lending may be a reasonable option, especially if you don’t qualify for other small business loan products.
However, in the case of most business owners, if you need financing to serve a whole variety of needs—either on or off the Amazon Marketplace—you’ll likely be better served taking out a different loan product. From short-term loans to business lines of credit to business credit cards, there are many small business financing options with greater flexibility than the Amazon loan.
Ultimately, though, it’s up to you to determine what kind of financing is best for your business—so if you’re invited to apply for a loan through the Amazon Lending program, you’ll have to weigh the pros and cons as they relate directly to your operations to decide if it’s the right option for you.
Georgia McIntyre
Georgia McIntyre is the director of content marketing at Fundera.
Georgia has written extensively about small business finance, specializing in business lending, credit cards, and accounting solutions.