5 Amazon Inventory Financing Options for Sellers
Inventory Financing Options to Meet Your Business Capital Needs
Tired of being in the vicious cycle of waiting weeks for Amazon to pay you to be able to purchase more inventory and keep your business afloat? Unsure of how you’ll float your inventory payments before the Christmas sales blitz pays out?
If you need to bridge cash flow gaps quickly, you may need inventory financing — specifically from alternative lending companies. It’s the best way to get a lump sum of cash because processing only takes a few minutes and depending on the loan product requirements, you might not even have to deal with putting up your inventory as collateral or running your credit (as opposed to banks).
You can simply leverage your account health and sales performance to qualify for an inventory loan or cash advance. This is especially beneficial to sellers who don’t want to put up any tangible asset as collateral or who don’t have stellar credit scores, but are definitely capable of paying back the loan with their business income.
As we all know, it’s tricky to get loans from banks as they usually cater to traditional retail businesses that have tangible assets like real estate properties, vehicles, and equipment. Thus, it can be challenging for online sellers to get approved for a loan without any physical asset that can be used to secure a loan.
So, what are your alternative options as an Amazon seller?
Read on to learn more about Amazon inventory financing. As a disclaimer, I am not a certified accountant or tax or financial advisor and it is important for you to discuss your options with your own financial team, but I hope that this information will be a helpful resource for you when deciding what funding sources will work best for you. This blog post explains what you need to know about how eCommerce loans work and how to use them to your advantage.
In this Amazon Inventory Financing guide, we’ll take a look at:
What is Amazon Inventory Financing?
Inventory financing is a funding solution that provides short- and long-term loans to online sellers. Funding sources can come from a bank, US Small Business Administration-approved lender, credit card issuer, online crowdfunding (think Kickstarter), or a fintech lending company (Payability and SellersFunding for example).
Eligibility factors vary by lender, but many would consider your sales performance (e.g., minimum 3 months of sales of over $2,000), cash flow (in the last 12 months), yearly turnover, operating history (e.g., minimum 6 months of actively selling on Amazon or other marketplace), or inventory liquidation value (if used as collateral).
With inventory financing, eCommerce businesses can:
- Cover short-term cash shortages. When you’re running low on stock but don’t have sufficient funds to replenish it, you can either leverage your good account health or put up your inventory purchase as collateral to get approved for inventory financing, and in turn, avoid stock outs and lost sales.
- Secure cash to buy additional stock for key selling dates like Prime Day, Black Friday/Cyber Monday, and the holiday season. Access to inventory loans gives you a chance to increase sales. Let’s say you secure a 6-month inventory loan to purchase 10,000 additional units of inventory for the holiday season and you sell through all 10,000 units in only 4 months (2 month lead time + 2 months holiday sales). The quick turnover allows you to pay off your loan sooner and order another batch of inventory to keep up with customer demand.
- Add new and related products to increase business profitability. Sellers who only focus on their existing products might miss out on some big opportunities that come with expanding into a new segment of their product category. For example, a seller of designer notebooks that enters the gel pens market could be a good diversification strategy. Plus, if the product is successful, it could also increase your business’s revenue and liquidation value, which improves your chances of qualifying for a higher loan amount.
- Launch a new and completely unrelated product. This means your new product has no commercial or technological similarities with your existing products at all. For example, a notebook seller decides to sell bike parts and accessories. Note, however, that this can be a more risky strategy as it requires the seller’s company to expand into a new market and sell the product to a new customer base, which can incur higher product research and ad costs.
- Grab special offers from suppliers. Slower months are normally the best time to buy inventory because of the off-season discounts that suppliers give to their buyers. These special offers allow buyers to purchase inventory orders at a much lower price and use the savings to boost your peak season ad budget or pay down debts.
Main Components of Inventory Loans
An inventory loan is typically made up of these five components:
Principal, Loan Amount or Borrowing Amount
This is the amount that you borrow from a lender. It can also be the amount that’s still owed on a loan, or also known as principal balance.
When applying for a business loan, or term loan (i.e., loan is paid back over a span of two to ten years), the amount of money you can borrow is often determined by the following factors:
Cash flow of your business
Banks often look at your cash flow as one of the primary considerations for a business loan, to determine whether or not it’s enough to repay the loan.
Liquidation value of your inventory
In contrast to bankers, asset-based lenders not only look at your cash flow, but also your inventory liquidation value. These lenders assess your inventory in terms of its ability to be liquidated to fulfill your loan obligations if something goes wrong with your cash flow. Inventory liquidation value is usually based on 80% to 90% of its book value, but could be lower than that depending on the degree of obsolescence and condition. Book value is an asset’s original cost minus any accumulated depreciation that has been recorded against it. Most lenders offer up to 80% of a borrower’s inventory liquidation value, although borrowing up to 100% is not unheard of.
Interest Rate: Nominal and Real
Interest rate is the percentage increase in money you pay the lender for the use of funds you borrowed. There are two types of interest rates – nominal and real.
Nominal interest rate, AKA advertised interest rate, doesn’t take inflation, any fees, or compounded interest into account. So, the nominal interest rate on your loan remains unadjusted or unchanged even if there’s a 5% inflation rate or the lender decides to grant a loan increase in the future.
For instance, a $50,000 loan with a nominal interest rate of 5% would accrue $2,500 in annual interest ($50,000 x 0.05). This rate does not change even if the principal or the general loan amount is increased one year later. You’d still pay a 5% interest if you had your loan increased to $75,000, for example.
Conversely, real interest rate takes inflation into account. This means lenders may adjust the interest rate on your loan to account for inflation. It can be calculated by finding the nominal interest rate and then subtracting the expected or actual inflation rate from the nominal interest rate.
Let’s say your lender wants to earn 7% interest, but they think there will be a 2% inflation in the next few months. If they don’t take the 2% inflation rate into account, they’ll only earn 5% interest because they will lose 2% of the purchasing power of the 7% interest rate to inflation. So, what your lender might do instead is apply a 9% interest rate to your loan to factor in the 2% inflation rate.
When deciding what interest to charge, lenders often think about how much interest is enough to make it worthwhile for them to lend money to borrowers. They also consider how much of the interest’s purchasing power (the amount of goods or services that one unit of money can buy) might be lost to inflation.
Annual Percentage Rate (APR)
APR includes the interest expense on your loan and all other fees associated with obtaining it. Note that it does not include compounding.
The fees typically included within APR are:
- Origination fees – the cost of processing your loan
- Closing or settlement costs – the cost of closing your transaction with the lender. Closing fees may also include taxes and credit report fees.
- Rebates – Rebate is a percentage return ranging from, let’s say, 10% to 20% of interest paid by the borrower, that’s given back at a later date. You can qualify for a rebate of some of the interest charges if you have no late payments for the first 12 months of your 24 month repayment term, for example.
- Discounts – Some lenders might offer a discount (generally expressed in percentage) as an incentive to encourage borrowers to pay off their debt obligations early, connect their checking account with the lender’s platform, etc. Other loan providers might also offer a certain discount on loan processing fees for specific individuals. For example, Bank of America gives veterans and service members a 25% discount on origination or admin fees.
That’s why APR is usually greater than the advertised interest rate, except for maybe when a lender offers a discount or rebate on a portion of the interest expense.
Using the same example as above, assume that your lender charges you a total of $4,000 in fees. To determine your inventory loan’s APR, $4,000 is added to the original borrowing amount ($50,000) to create a new loan amount of $54,000. A 5% nominal interest rate is used to calculate a new annual payment of $2,700 (or $225 monthly).
Now, let’s find the APR for our example using the formula below:
New Annual Interest Payment ÷ Original Borrowing Amoun x 100 = APR %
– or –
($2,700 ÷ $50,000) x 100 = 5.4% APR
APRs on small business loans vary by types of lenders. As of this writing, National and regional banks have an average APR of 2.58% to 7%, foreign banks (any US branch of a banking organization headquartered outside of the US like the Royal Bank of Canada and Bank Austria AG) have 1.45% to 5.66%, and online/alternative lenders tend to be anywhere from 13% to a whopping 71%.
A low APR might mean that the lender has fewer upfront fees and is giving you a better deal.
Repayment Terms or Maturity Terms
This is the number of months that you’ll have to repay what you’ve borrowed. Suppose you chose to pay your $50,000 inventory loan within 24 months. In that case, your repayments would be spread out over a two-year period.
In inventory financing, 3 to 12 months (e.g., online lending) is the most common repayment term, but there are some loan providers who can offer up to 36 months, or even 120 months in the case of some SBA loans.
Upfront Fee
This refers to the fees associated with processing and approving your loan application, such as underwriting your application and recording your loan with the government and/or credit reporting agencies. Fees vary across different lenders, and you may also be charged additional fees that may be deducted upfront or over the life of your loan.
3 Types of Inventory Financing
Traditional Inventory Loan
A traditional inventory loan is a loan based on the resale or liquidation value of your inventory. It works like a regular small business loan, where the lender sets an amount that you must pay back in monthly payments (with interest) over a fixed repayment term OR in one single payment (lump sum) at any time, though be aware that some lenders charge a prepayment penalty for terminating the contract early.
However, it is important to understand that this is not revolving credit. With a traditional loan, you can only use the money once. So, once the funds are dispersed to you and you’ve repaid them in full with interest, the loan is closed out and you’ll have to apply for another loan in the future if you are in need of more funds.
Where to get Inventory Loans?
If you meet the qualifications, you can get inventory loans from lenders approved by the US Small Business Administration (SBA). The loan amount that SBA lenders can offer you ranges from microloans averaging $13,000 all the way up to $5M depending on the type of loan product. However, most SBA loans require worthwhile assets like inventory, equipment, accounts receivable, or buildings as security.
And since the inventory you plan to purchase acts as collateral, that means the SBA lender could take away your inventory if you end up defaulting on your loan. Another caveat is that some inventory loans have certain restrictions on things you can use your borrowed money for. For instance, your lender might not allow you to use the money for paying taxes or payroll. This is why traditional loans are considered less flexible than other types of financing like lines of credit.
If you don’t get approved for a traditional SBA loan, or simply need more funding, the alternative lending industry could offer the financing solution that your business needs. Alternative lending refers to any lending that isn’t tied to a traditional financing institution, such as banks or credit unions. There are different kinds of alternative lending companies. These include:
Online lending or fintech lending
Fintech lending companies like SellersFunding leverage financial tools and technologies that can be plugged into Amazon or other marketplaces so that they can easily pull up and verify the information (e.g., cash flow, sales, selling history, etc.) they need to offer you a loan. This process requires little paperwork, making inventory financing easier for small and mid-size businesses.
Private lending
Private individuals or businesses who lend their excess cash to borrowers.
Marketplace lending
Marketplace lenders use an online platform to connect borrowers with investors directly. They get money from investors (e.g., private lenders) and offer financing to borrowers, and in return, they get fees and commissions on each transaction.
Peer-to-peer or crowdfunding
This would be using a crowdfunding platform like Kickstarter to raise a certain amount of money from a large number of people, including your family and friends, to help fund your business goals.
Alt lending companies commonly leverage technology to provide a more seamless online lending application process and service to businesses, including those who don’t have the best credit scores. Some alt lenders don’t run credit checks, so a less-than-stellar credit rating might not even be an issue as long as you’re able to demonstrate excellent sales performance.
Instead of putting up physical assets as collateral or trying to meet a high credit score, you can leverage your stellar sales data to get approved for a loan and use the money for business growth. The loans that alt lending companies offer, specifically fintech, range from $2,000 to $5M with repayment terms varying from six to 18 months. However, due to the short maturity term, you might also end up having higher monthly repayments.
Line of Credit (LOC)
Also known as revolving credit, a line of credit is a form of financing in which loan providers extend a certain amount of credit to online sellers for an open-ended amount of time. This way, sellers can quickly draw upon their credit line to purchase inventory or use it for various business expenses on an as-needed basis.
Similar to a credit card, as the loan is paid down, more credit becomes available and can be borrowed again as needed. You don’t need to pay the loan in full before more funds become available. So, unlike traditional inventory loans that you can only use once, LOCs are revolving and can be drawn from and paid down and drawn from again and again.
Example of How LOCs Work
Suppose you need to buy $300,000 in inventory to prepare for the holiday sales season. You apply for an LOC with a lender who determines that the liquidation value of your inventory purchase is $250,000. The lender then lets you borrow 80% of that amount, which would total $200,000, plus a 10% APR.
If your LOC is $200,000 and you borrow $100,000 today, you still have $100,000 available to borrow when you need it. Then, you pay back $75,000, which means your principal balance goes down from $100,000 to $25,000 and your available credit goes back up to $175,000.
Who Uses LOCs?
This financing type is especially useful for eCommerce stores with fluctuating cash flow. When you don’t have cash available to purchase additional inventory for let’s say Q4, you’re going to stock out and miss out on sales. Unfortunately, cash flow issues happen often in the eComm world, so to prepare for such emergencies, it’s a godsend to have a revolving credit that gives you access to money whenever you need it.
In addition, inventory LOCs are also ideal for eCommerce businesses with short operating histories or less-than-stellar credit ratings. The lenders that offer LOCs are generally non-bank financing companies, also known as digital platform lenders because they offer a turnkey solution for applying and obtaining working capital online.
LOCs from platform lenders are specifically designed for online physical products businesses. The main eligibility factors are typically based on seller account health and sales performance, i.e., no collateral required. These alternative lenders leverage data and machine learning. You connect an app to your preferred marketplace API (Amazon, Shopify, Stripe, among others) so that your lender can pull the sales data that they need to determine how much credit to extend to your business. These LOC products may also fluctuate in value (credit limit) based on sales per API, meaning that your credit limit could increase or decrease during the life of your business based on performance.
Aside from the revolving credit element, the no collateral required or credit check component also makes this option great for newer sellers or sellers with poor credit scores.
Line of credit is typically available from fintech companies such as SellersFunding. It’s literally the loan product I’ve been dreaming of for years and is made even more sophisticated when an interest-only period is introduced (read more below). Fintech companies show they understand the eCommerce business model when they craft products that work the way our businesses work.
Interest-Only Loan
An interest-only loan is a financing program in which borrowers only pay the interest on their term loan or LOC for a certain period of time (90-120 days is most common). The principal balance remains unchanged during this period as the payments are significantly smaller during this time and only go towards paying interest.
This setup is perfect for sellers who tend to have a long lead time (e.g., 60+ days). You can get an interest-only loan in order to account for the fact that your long lead time may mean that you are not going to be making money on that inventory for several months.
Once your inventory arrives and your interest-only period is still ongoing, it allows you to start making money on that inventory before your larger interest and principal payments kick in.
This is huge because it prevents you from having all of your cash flow tied up in loan payments while you’re waiting for that inventory to arrive and start producing income for you. That’s why I highly recommend interest-only payment loans to physical product sellers.
5 Inventory Financing Options for Amazon Sellers
Amazon Lending
Amazon Lending is an invite-only financing program through which Amazon offers short-term business loans to qualified third-party sellers. If you qualify for the program, Amazon will send you an invitation (via Seller Central or email) to apply for a loan. And depending on your eligibility, you may be offered a short-term loan of up to $750,000 with up to 12 months payment term.
More information on how Amazon Lending works:
Basic qualifications:
You must be an active Amazon seller (at least 12 months operation history), your account is in good standing with good customer satisfaction metrics, no serious complaints from customers in the past 6 months, and have a consistent sales performance (at least $10,000 in the past 12 months).
Application process:
Application can be done online. No credit check required. Selected sellers typically get approved as soon as they accept the offer.
Wait time:
If no additional information or verification is required, you can get approved in minutes. Often, you will be given a loan offer and it will be approved as soon as you accept it. It may take a day or two to receive your funds, but that is pretty quick too.
Loan restrictions:
Back in Amazon Lending’s early days, the borrowed money could only be used to buy inventory orders to sell on Amazon. Now, sellers can use the funds to expand product lines and to invest in advertising.
APR:
Amazon hasn’t disclosed the precise APRs for their loan products, but according to this business financing article, the rate ranges from 10.9% (4-month loan) to 12.9% (6-month loan). But some sellers say that it could also be between 6% and 16%.
Repayment: Your repayments are deducted from your Amazon payouts automatically. If the payout amount isn’t enough to cover your loan payment, the outstanding principal balance will be deducted from your next payout or Amazon will charge the payment method connected to your seller account.
Fees:
Amazon doesn’t charge any origination fees or prepayment penalties.
Other Amazon Lending Programs
LOCs from Goldman Sachs
Amazon has also recently partnered up with Goldman Sachs to offer up to a $1M line of credit to Amazon sellers. A report from CNBC says:
“The application process is fully digital and can be done in minutes, and most customers will get approval results in real-time. The credit lines will come with an annual interest rate of 6.99% to 20.99%. If users don’t make minimum payments on time they’ll owe late fees and a maintenance fee if they don’t use at least 30% of their credit line. If sellers consent to it, Goldman will use data on businesses’ revenue and tenure on Amazon to determine who should be approved.”
In addition, this LOC program is currently by invitation only. If you’re eligible, you’ll receive an offer on your Seller Account page with a link to apply for financing.
Amazon Community Lending Pilot Program
Amazon has teamed up with Lendistry to provide a more diverse set of funding solutions to small and mid-size Amazon businesses in the US. Lendistry is an established minority-led Community Development Financial Institution (CDFI), which serves small businesses in socially and economically distressed communities across the country. Such small businesses include Hispanic-Latino and African-American-owned businesses, as well as individuals from CDFI-designated investment areas. Sellers who identify with these communities are encouraged to apply for a loan of up to $100,000. Monthly repayments can be spread out over a two-year period at APR ranging between 8% and 9.9%. Click here to check your eligibility.
Related: Amazon FBA Calculator: Factor FBA Fees to Calculate Profitability
US SBA Loans
Established in 1953, the US SBA is a federal agency that helps entrepreneurs connect with lenders to find funding for their business plans. The agency sets the guidelines for the loans created by their partner lenders to make it easier for borrowers to obtain capital and reduce credit risks to lenders such as borrowers defaulting on their loans.
SBA has a loan guaranty program, in which they offer a certain guaranty percentage per loan amount and product type for a fee (up to 3.75% of the loan amount, which lenders pass on to borrowers). Guaranty percentage is the percentage of the principal that SBA will reimburse the lender in case the borrower defaults on his loan. For some loan programs, the agency can assume a debt obligation of up to 85% of loans $150,000 or less and up to 75% of loans above $150,000.
The guaranty program is a huge deal because it encourages SBA lenders to grant working capital to small business owners that otherwise might not get it from other funding sources without SBA support.
Now that you know what SBA’s role is, let’s look at the different loan products that they offer through their Funding Program.
Standard 7(a) Loan
The term “7(a)” is derived from the Section 7(a) of the Small Business Act of 1953. This act gives the agency permission to “provide and guarantee business loans to US small businesses.”
7(a) is the go-to SBA loan program of many small business owners, including online sellers, as they can borrow up to $5 million and use the money to:
- Access short- and long-term working capital
- Purchase inventory or access LOC based on the value of existing inventory
- Purchase equipment, machinery, fixtures, building supplies, furniture, or materials
- Purchase real estate, including land and buildings
- Construct a new building or remodel an existing building
- Refinance current business debt (under certain conditions)
Here’s more about how it works:
Key eligibility factors:
You must have a US-based small business that operates for profit and must be able to explain why you need a loan.
Basic qualifications:
Must be creditworthy, able to demonstrate good business management, excellent sales performance, show potential for long-term success, reasonably assure repayment with earnings from your business, and valuable tangible asset that you can put up as collateral (the value or nature of your collateral will not be the only deciding factor for denial of your loan application).
Note: US SBA doesn’t require lenders to take collateral for 7(a) loans of $25,000 or less.
Application process:
Fill out the SBA Form 1919 and send it to your SBA-approved lender. You’ll also need to complete both SBA Form 912 (statement of personal history) and SBA Form 413 (personal financial statement) to help SBA evaluate your eligibility. Submission of business financial statements is required to demonstrate your ability to repay a loan. These include current Profit & Loss Statement or Income Statement, Projected Financial Statements (12-month income and finances projection and explain how you plan to accomplish this projection. Other important documents that you must prepare also include business license/certificate, income tax returns, loan application history, copy of business lease, and business overview and history with an explanation of why your business needs a loan and how it will help you.
Approval time:
Approval time for 7(a) loans usually takes 5 to 7 days. But waiting times can be shorter than that (24 hours) if you partner up with an SBA Preferred Lender. Lenders with a “Preferred” status are considered the most active and most qualified, i..e, they’re authorized to make final credit decisions on SBA loans versus non-preferred lenders that must submit loan applications to SBA for assessment and approval. And that takes extra time.
Loan restrictions:
Restrictions on SBA loans depend on the loan type. Some programs obligate you to use the money for specific purposes only (see the list of 7(a) loan uses I’ve mentioned above for example). If your desired use isn’t listed on SBA’s intended uses for their 7(a) loan program, this isn’t probably the right type of financing for your business.
Interest rates:
Can range from 5.5% to 8% depending on the loan amount, whether the interest is fixed (doesn’t change) or variable (may change after 3, 5, or 7+ years), and the repayment term.
Repayment term:
Repayment terms do not go over 10 years for most loans (including inventory loans) and 25 years for real estate loans.
Fees:
Only guaranty fees are allowed, meaning application, processing, origination, and broker fees, among other fees are prohibited. Guaranty fees can vary from loan size to loan size. For example, for loans of $150,000 or less, the guaranty fee is 2% of the guaranteed loan amount.
Down payment:
Many SBA-approved banks typically require borrowers to make a 10% down payment. In some cases, they may offer 100% financing with nothing down depending on the type of loan. Talk to your SBA lender to learn more about their down payment requirements.
Other Types of SBA Loans
7(a) Express Loan
Express Loan is a type of 7(a) loan that offers business loans up to $500,000 with a 50% max guaranty percentage and 36-hour turnaround time. The lender makes the final credit decision, which explains the very fast turnaround time. General 7(a) loan eligibility, qualifications, loan restrictions, among other requirements apply. Additionally, SBA doesn’t require Express Loan lenders to take collateral for loans up to $25,000, but they may use their current collateral policy for loans more than $25,000 up to $350,000.
7(a) Small Loan
This financing option is ideal for business owners whose desired loan amount does not exceed $350,000. Lenders can also get up to 85% guaranty for loans up to $150,000 and 75% for loans greater than $150,000, making it a safer and easier decision to fund. Interest rates vary depending on what the lender and borrower will agree on, but it should not go over the max SBA interest rate. Approval time takes about 5 to 10 days, as SBA makes the eligibility and credit decisions unless you’re working with a preferred lender.
Microloans
Perfect for smaller business owners, including those with limited or no business experience, this program offers up to $50,000 loan that can be used for working capital, inventory, equipment, furniture, or supplies. It cannot be used to buy real estate or refinance current debts. Collateral may be required depending on the microloan lender’s eligibility requirements. The maximum repayment term does not exceed 6 years and interest rates range between 8% and 13%. If interested, you can apply for a microloan through SBA-approved non-profit, community-based organizations that have experience in processing SBA microloans. You can look up SBA microloan lenders by district office here.
In sum, SBA’s funding program features the best loan sizes and interest rates, but the application process can be quite complex. Not to mention, the long wait times.
Lucky for you, there are other better ways for sellers now that didn’t exist 5 years ago. If you need working capital fast, fintech lending might be the fastest way to get the money you need to buy inventory. Or, even better, leverage both inventory financing options for more financial flexibility.
Fintech Lending
Fintech lending is online lending through fintech companies, such as Kabbage, Payability, and SellersFunding. These financing firms, also called alternative lending companies or platform lenders, use the latest financial technologies (APIs, artificial intelligence, data analytics, etc.) to streamline the lending process.
For example, fintech lenders can make their products and services available to third-party companies via Application Programming Interface (API). API is a software intermediary (like a chain link or a bridge) that allows two applications to exchange data securely.
When a fintech API is connected to your Amazon account, for example, it enables them to pull up your store or sales data automatically. AI technology and big data analytics may also be used to analyze your creditworthiness (specifically for those fintech firms that require a minimum credit score, though many do not require this) and verify online documents in minutes.
This streamlined process helps online lenders quickly assess your eligibility for a loan and determine how much credit limit to extend to your business. Some fintech lenders also don’t require collateral or set a very high credit score (anywhere between 600 and 650), while others don’t set anything at all. Rather than using those traditional metrics, they’ve built their loan qualifications around other factors that are strong indications of a business’s potential, such as 6- to 12-month sales history and monthly net sales in the last 3 months.
That is how fintech lenders are able to approve loan requests within 24 to 48 hours and also why online lending is an excellent inventory financing option for eCommerce businesses.
Basic Features of Fintech Lending Companies
- Fast approval. Again, fintech lenders use innovative financial technologies to review your loan application in minutes–a striking contrast to traditional loans from banks that can still take weeks or months to approve.
- Online verification. No more visits to your bank loan agent to verify your documents, as everything is processed online. You can simply fill out forms and upload the required documents to the lender’s website and let them do the rest. Or, the lender can simply pull up your seller data via API.
- Flexible loan amounts and repayment terms. Similar to banks or SBA lenders, fintech companies also offer different loan products and loan sizes. The standard working capital loan (as low as $2,000 to as high as $5M loan amount) is the most common. The repayment terms are also more flexible. Banks often have a minimum of 12-month tenure for their loans. Fintech lenders, on the other hand, have a minimum of 3 months.
- Open to all online merchants, including those with less-than-perfect credit scores or limited operating history.
Fintech Lending Company Options
Note that the criteria for eligibility, repayment terms, interest rates, and fees vary among different lenders. Make sure to get more information from your fintech company’s loan officer or customer representative before applying.
| Company: Sellers Funding | |
|---|---|
| Loan Size | Up to $5M with a 90- to 120-day interest-only period |
| Qualifications |
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| Purpose(s) of the loan |
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| Approval Time | 48 hours |
| Payment Terms | Up to 12 months |
| Interest Rates | 12.5%- 24.99% APR |
| Fees | One-time processing fee of $100 |
| Company: Kabbage from American Express | |
|---|---|
| Loan Size | Up to $250,000 (revolving credit) |
| Qualifications |
|
| Purpose(s) of the loan | Purchase of inventory, boost advertising efforts, and many more |
| Approval Time | 24 hours |
| Payment Terms | 6 to 18 months |
| Interest Rates | |
| Fees | No origination fee or prepayment penalties |
| Company: OnDeck | |
|---|---|
| Loan Size |
|
| Qualifications |
|
| Purpose(s) of the loan |
|
| Approval Time | Complete the online checkout and receive your funds as soon as the same day. |
| Payment Terms |
|
| Interest Rates |
|
| Fees | N/A |
Merchant Cash Advance
A merchant cash advance gives small businesses access to a lump sum of cash, which they repay with a percentage of their daily or weekly sales revenue. It works quite similar to Amazon Lending, in that your online store is tied to your merchant cash advance account (PayPal, Stripe, or Payability). This allows the lender to automatically deduct repayments from your sales based on the repayment percentage you selected when you applied.
And because your auto-repayments get deducted as a % of each sale, the amount you repay each day changes with your sales volume. The more you sell, the more progress you’ll make toward paying down the advance.
That said, this financing option is great for sellers who receive payments through cash on delivery, debit/credit cards (as opposed to invoices that can take weeks to collect payments), and who have high sales volume.
Loan amounts range from $2,500 to $250,000, although larger amounts are possible if your business’s sales performance qualifies. The application process is fairly simple. You can apply online with less documentation needed. If qualified, credit checks or collateral might not be required. Approval time can be as fast as 24 hours.
Interest rates may be applied depending on the lender. Cash advances from fintech companies often don’t have interest rates compared to credit card issuers and banks. However, they may charge a flat fee to cover the paperwork or service involved in processing your funding request.
Merchant Cash Advance Options
| Company: Payability | |
|---|---|
| Loan Size | Up to $250,000 with an accelerated daily payout option. The loan amount might also be 75% to 150% of 1 month’s worth of total sales. |
| Qualifications |
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| Purpose(s) of the loan | Replenish inventory, launch new products, or invest in marketing to grow your FBA business |
| Approval Time | 24 hours |
| Payment Terms |
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| Interest Rates | None |
| Fees | One fixed fee |
| Company: Paypal – Working Capital | |
|---|---|
| Loan Size | Cash advance amount is based on your PayPal account history, so you receive an amount that fits your business. |
| Qualifications |
|
| Purpose(s) of the loan | Buy additional stock, improve marketing campaigns, etc. |
| Approval Time | Minutes to 24 hours |
| Payment Terms |
|
| Interest Rates | None |
| Fees | One fixed fee based on the loan amount, repayment percentage, and Paypal business account history. |
| Company: Kickpay | |
|---|---|
| Loan Size | Up to $1M |
| Qualifications |
|
| Purpose(s) of the loan | Purchase of inventory, invest in marketing efforts, research and development, and more |
| Approval Time | 24-48 hours |
| Payment Terms | Only pay Kickpay back when you make a sale. If sales go up, repayments increase. If sales go down, repayments decrease. |
| Interest Rates | None |
| Fees | Fixed fee: 3% to 7% of cash advance amount |
| Company: Stripe Capital | |
|---|---|
| Loan Size | The size of your loan offer depends on how much you process through Stripe. |
| Qualifications |
|
| Purpose(s) of the loan | Manage cash flow and invest in business growth |
| Approval Time | 24 hours |
| Payment Terms | Repayment is fully automated and adjusts to your daily sales. Stripe deducts a fixed percentage of your sales until the total amount is repaid. |
| Interest Rates | None |
| Fees | One fixed fee. No compounding interest charges, collateral obligations, or late fees. |
Peer-to-Peer Lending
Peer-to-Peer (P2P) lending is another way to obtain a loan if you’re not qualified for a traditional bank loan. Rather than by a bank or a lender, the loan is directly funded by individual investors who are willing to lend their money. You can work with a P2P service provider to connect you with potential investors. Examples of P2P lenders include:
- Funding Circle, which offers loans of up to $500,000 with repayment terms ranging from 3 months to 5 years.
- Lending Club. This P2P site offers up to $500,000 with repayment terms between 1 and 5 years.
- StreetShares ($100,000). This lender offers up to $100,000 with terms ranging from 3 months to 3 years.
- Upstart ($50,000), which offers up to $50,000 with repayment terms between 3 and 5 years.
The application process is very straightforward, as there’s less paperwork and loan approval only takes 24 hours. The interest rates vary (from 5.99% to 29.99% APR) but can often be relatively low because the investors don’t have to pay the same overhead cost as banks. However, P2P lenders typically charge an origination fee between 1% and 8% of the loan amount, which is higher than most banks and fintech lenders.
Crowdfunding
Crowdfunding is a practice of raising money online for a project or venture by asking people (AKA backers) to donate money.
You could pre-sell your product this way and create buzz around the product. This type of funding is best if you have a new and innovative product that you are launching and would not be suitable for most typical types of inventory needs or product launches.
We will not go in-depth about crowdfunding as that would be a whole subject in itself, and that is not the point of this article, but here’s a quick guide to raising funds via crowdfunding platforms like Kickstarter, FundRazr, and IndieGoGo.
Set the price for your product.
Determine your product’s price point by researching similar products on the market. If you know how much other sellers would sell a product similar to yours, it’ll help you decide whether to price yours higher than that. You can then position your brand as something premium — a cut above the rest.
Set your target goal.
How many units of your product do you intend to pre-sell? How much money do you need to produce all of those? And when do you need the funds?
Build a campaign around your crowdfunding goals.
Identify your target customer base and start thinking about how to appeal to them. Consider checking out both successful and unsuccessful campaigns in your crowdfunding project category to gain an insight into how they designed their campaign page, wrote their copy, placed call-to-action buttons, structured rewards, or formatted pitch videos.
Create reward tiers.
A reward tier is an incentive system where backers are rewarded for their contribution to a campaign. Rewards can be physical items, digital rewards, or both. In crowdfunding, there are two types of backers: those who know you personally and your potential customers. Your friends and family will be more than willing to support you regardless of whether they’re your target demographic, but attracting potential customers can be a little bit tricky. This is where creating a reward tier for each “backer” persona comes in handy. Structure your reward tiers in a way that allows each type of backer to contribute to your campaign.
Leverage your social media network and media assets to promote your campaign.
Get the word out by sharing engaging marketing materials (e.g., photos, pitch videos, email newsletters, blog posts, etc.) to help your campaign stand out. Make an emotional connection with your target customer base by providing an overview of your business or product (any inspiring story behind it) and an explanation of why you need funding.
Improve Your Inventory Management System to Increase Sales
Seeing that sales performance is one of the key eligibility factors for most loan products, it’s essential to implement an inventory management system that will give you that extra layer of intelligence that you need to boost sales and overall efficiency.
Inventory Valuation and Cost of Goods Sold (COGS) Report
If you’re going to a more traditional route, banks may check your financial statements to assess your business profitability. So, you need to track and calculate the COGS of each of your products to give the bank a full and accurate picture of your overall business financial performance.
In SoStocked, you can set up an Inventory Valuation Dashboard to track and calculate your COGS. Calculating your COGS will help you to figure out which products are most profitable (e.g., 80% of your income is coming from these products) and which are not (e.g., slow sellers or deadstock inventory). Once you know all this, you can quickly take action. You can try to reduce your COGS to increase your profit margins or improve your slow sellers’ sell-through by liquidating them or creating flash sales.
Forecast Modeling
When applying for a loan, a lender is going to be interested in what your sales may look like in the future. For example, SBA requires a 12-month sales projection to be considered for a loan. Therefore, it’s crucial to have a system that has an inventory forecasting feature.
SoStocked lets you factor in your past sales and future marketing plans (e.g., planned sales events, seasonality, growth trends, and deals) to generate a highly accurate inventory forecast. You can then create a detailed 12-month inventory & sales game plan around that forecast to help steer your efforts toward achieving that projection.
Min-Max Restocking
Set a range for your minimum and maximum days of stock for Amazon FBA and your 3PL warehouse for efficient reordering. Having a reordering process in place will help you to avoid stocking out, which, as you know, has a negative impact on your bottom line, restock limits, and IPI score.
Liquidations Dashboard
Use our Liquidations Dashboard to monitor slow-selling products that are likely to cost you dearly in long-term storage fees and holding costs — costs that can negatively impact your COGS.
Once you’ve identified your least profitable products, you can quickly decide whether to dispose of them (e.g., obsolete, unsellable condition) or if they’re worth selling via flash sales (you’d need to set aside some budget to promote the sales to your customers). Either way, you’ll be freeing up space and capital that could be used for new products and top sellers, thereby eliminating additional storage fees and improving revenue with more successful products, all of which helps boost your profit margins.
Leverage Loans From Banks and Non-Bank Lending Companies
Overall, the best approach is to leverage both inventory loans and LOCs from more traditional lending sources, which often will give you access to funding at a lower rate, AND to also leverage fintech and Amazon lending for financial emergencies and quick turnarounds which are often available at a higher interest rate.
Banks and SBA-approved lenders may be using old-school metrics that make the lending environment complicated for Amazon sellers, but that doesn’t mean you can’t take advantage of their offers. They may be a good option for you if you’re a more established business and need larger working capital than what most fintech companies provide. And remember, processing can now be expedited with lenders from the SBA Preferred Lender program.
Alternatively, fintech lending is a good option for sellers who may not qualify for a traditional bank loan due to low credit scores, limited selling history, or collateral issues. You can apply and get approved in minutes because there’s little documentation needed and no credit checks.
Additionally, if your business is growing too fast and Amazon’s bi-monthly payout period is causing cash flow issues for you, consider leveraging cash advance offers from fintech companies.
Unlike in years prior when options for eCommerce sellers were limited and hard to navigate, there are now many products that are designed specifically with your eCommerce small business in mind. It is always important to use lending wisely but when you do so, it can be an outstanding vehicle to help you to truly scale your business by avoiding stockouts, investing in new products and upping your marketing efforts to increase sell-through and, ultimately, to drive revenue and profits.
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Chelsea Cohen is an Amazon seller, speaker & consultant. An Amazon expert, her regular clients include 7 & 8-figure sellers. She has been featured on AM/PM Podcast, 7-Figure Sellers Summit, and the Prosper Show & Amazing Summit stages, among others.