Small businesses apply for FBA loans for different reasons. Startups look for funding while mature companies need working capital. Sometimes it can be difficult to completely understand what’s required to qualify for an FBA loan. Here is what is needed to understand the approval process:
What is an FBA Loan?
Fulfillment by Amazon (FBA) is a lending program provided by Amazon that offers short-term financing to eligible sellers to advance their business. Amazon checks out the ability of the seller to increase sales and provide top-level customer satisfaction. They use these details to determine which sellers qualify for a loan.
Amazon lending is currently by invitation only. Amazon sellers can know if they’re eligible by checking the Amazon lending widget that shows up on the homepage of their Seller Central account.
How to Finance an Amazon Business
Before borrowing money, sellers must think about their goal and the type of financing that best fits their business. Having a clear picture of the requirements helps business owners to review their annual cash flow and business financing. Here are several things to consider:
- Check your credit score to know the risk level
- Determine how soon your business requires funding
- Learn about the timetables available for paying back the funds
Amazon Business Financing Options
Amazon offers different terms for every seller. They do not disclose many details on the loan terms until a seller becomes eligible. Generally, the loan terms include:
- Maximum a loan amount of $750,000
- Minimum loan amount of $1,000
- Loan terms of three, six, nine, or 12 months that come with fixed monthly payments
- Amazon does not provide information on the interest rates
FBA financing options include:
Amazon Lending
Amazon lending refers to a program by Amazon that provides qualified sellers with short-term loans. The program aims to increase sellers’ market reach and finance additional inventory.
Potential borrowers should prove that they deserve the loan. They should operate at a top-level tier for a long time with high sales volume before getting funding from Amazon.
The amount of money offered by Amazon depends on the amount the seller needs, and the type of collateral provided. Eligibility for the Amazon lending program is based on the following information:
- Customer satisfaction metrics
- No serious complaints from customers in the past six months
- Conformity to the Amazon listing guidelines
- Selling on the Amazon platform for not less than a year
- Sales of a minimum of $10,000 within the last year
- No outstanding trademark or copyright violation complaints
Amazon Line of Credit
Amazon sellers who feel that Amazon Lending is not the right option for them or that it does not offer enough capital can consider the alternative, the Amazon line of credit. The business line of credit provides the flexibility of requesting funds if the need arises.
With lines of credit, sellers can avoid taking a large lump sum and the application process takes mere minutes. After approval from online lenders, sellers can hold on to the funding and borrow when they need it. The majority of online lenders charge a monthly fee of 1.5%-10%.
Prepayment does not come with any penalties. But the term usually ranges between six months to one and a half years with APR depending on the lender a seller applies through. Amazon’s credit line helps sellers avoid interest rates and access cash when they need it.
Merchant Cash Advances
Amazon sellers can use merchant cash advance (MCA) to get close to immediate funding for their FBA businesses. The main advantage is that sellers do not require collateral. Amazon sellers can apply and qualify online with little paperwork, making it convenient.
MCA lenders don’t look at the credit score alone for approval, giving the sellers a chance if their credit score is not so good. Obtaining this type of financing is easy and comes with a high-interest rate since it’s not a regulated industry.
The fees vary significantly from one lender to another. Common loan amounts range from $2,500-$250,000.
Personal Loan
A personal loan is the best bet for an Amazon FBA Seller who’s just getting started. Sellers usually get funding of $2,000 to $50,000, which helps them get going. To qualify for a personal loan, sellers need to have a decent income statement and an outstanding credit score.
Annual percentage rates usually range from 5% to 36%. The term loan length is 2-7 years.
There are many vendors available when searching for personal loans. Amazon sellers need to take time and do the research to get the best rates.
Once approved, they can assess the funds within one business day. Sellers are required to make the same payments monthly.
Choose the Best FBA Loans Financial Solution Platform
Secure funding is the most crucial aspect when starting or growing an online business. FBA loans come in many options. Amazon sellers only need to identify one that matches their specific needs.
The type of loan to apply for varies depending on the goals set by the seller, such as annual sales volume or inventory size. Before taking out any loan, research the risk involved beforehand. Being informed helps reduce financial risk and makes the loan repayment process easy.
