Do You Need A Loan To Become An Amazon Seller?
Though getting a loan isn't one of the requirements for becoming an Amazon seller, just about anyone looking to participate in Amazon's FBA program is going to need one in the beginning.
To launch a new Amazon store, you're going to need inventory and storage at a minimum, and you’ll probably want marketing and analytics tools as well. There are different costs associated with each business model on Amazon, so you’ll want to determine which is most suitable for you. Unless your current job provides you with plenty of disposable income, these things require some planning.
That said, it is possible to launch an extremely lean FBA business that you can afford to fund on your own. If you've crunched the numbers and determined that that's you, you can go ahead and skip this article. For everyone else, let's dive in.
Funding For Amazon Sellers Is A Challenge
If you've been scrounging around Google for Amazon loans, then you don't need us to tell you that finding funding for your Amazon startup is tough. It's hard enough finding the funds to launch a traditional startup business.
There are no Amazon bank loans, however, and the queue of Amazon FBA investors is a short one. In some ways, this makes funding an Amazon startup trickier than a traditional one. If you're going to fund your Amazon FBA business with more than your own bank account, then you're going to need to be crafty.
Decide If A Loan Is Right For Your Amazon Business
Before we get too deep into this, though, you need to decide if a loan is the right move for your Amazon business. If your needs are lean enough and you can get by without a loan, then we highly recommend giving it a shot. It'll save you time, debt, and interest on loans in the long run.
If your current business idea has enough upfront costs that a loan is inevitable, see if you can come up with alternative ideas that are less costly. Even if these less costly ideas still require loans, cutting down on your initial expenses can save you headaches in the future.
If you're sure that an Amazon loan is the right decision for you, then you're ready to sort through these funding ideas for Amazon FBA businesses.
1. Self-Funding
The first and most obvious way to fund your Amazon FBA business is through your own funding capabilities. If you have a savings account that already has the funds you need (assuming it's not your safety net) then consider investing that into your new business.
You can also open a savings account for your FBA business and wait until you've saved up enough money to launch your startup. Whether or not this is the right decision for you will depend on how much money you need to save and how long it will take you to save that money.
A word of warning about self-funding: don't dip into any critical accounts to fund your FBA business unless you're a seasoned businessperson already. This includes retirement funds, emergency funds, home equity, and so forth.
2. Liquidate Your Assets
Next up is an option that's very similar to self-funding, and that's liquidating your assets, which is a business-y way of saying "sell your things". For those passionate enough to make sacrifices for their FBA business, you can start going through your things and determining if any of them have enough value to kickstart your business.
A yard sale is a great way to increase your funding, especially if your FBA business is on the smaller side. For greater rewards, however, you'll want to look for items you have that are higher value. This includes tech, extra vehicles, collectibles, art, etc. Don't sell anything you can't live without, but if you have a cluttered house, it's a great way to earn a little extra cash.
3. Borrow From Friends and Family
Last up on our trilogy of DIY solutions is borrowing funds from friends and family. This idea might not be ideal for everyone as it can strain your familial relationships. If you have relatives that believe in your idea, however, they can be a useful resource.
We don't really have any tips for borrowing from your close friends and family; it's just going to require a personal conversation and a convincing pitch. We will say, however, that you need to be honest and open. Don't borrow more than you need or think you can pay back, and don't make false promises. Otherwise, you'll lose more than money if your business doesn't succeed.
4. Peer-to-Peer Financing
Peer-to-peer financing, or P2P, is lending between individuals rather than businesses and banks. You have an idea that needs funding, someone wants an idea to invest funds into, and boom! It's like Tinder for loans.
There are P2P lending sites all over the internet, so just find the one that's right for you and start pitching to potential lenders. This method is great for those who don't want to deal with the impersonal nature of banks.
You will need a reasonably good credit score, however, as well as a clearly defined goal for your business. Different lenders will prioritize different things, but these are the two things you generally want to have for P2P financing. Here are some P2P lending sites to check out:
5. Amazon SellersFunding Loans
For those who want to get funds straight from the horse's wallet, there's Amazon's SellersFunding. SellersFunding is an automated way for new (but not brand new) sellers to get quick funds with reasonable interest rates.
SellersFunding has some requirements in place, so not just anyone can apply. You'll need at least six months of experience selling through the Amazon Marketplace and $30,000 in sales during that period. In other words, you need to have at least $5,000 in sales for each of the six months prior to applying for a SellersFunding loan.
The approval process is handled by an algorithm, which makes it a pretty quick ordeal. You should know if you're approved in about five minutes. The algorithm will decide how much you're approved for and will then transfer it to your account. You then have a 90-day grace period before you need to start making payments on the loan.
Amazon also partners with local banks and lenders in certain target countries like China and India to help sellers based in those countries get loans for inventory. So if you’re a seller based in China or India, you have one more way to fund your Amazon business.
6. Kabbage Loans (and other Private Small Business Lenders)
For an alternative to Amazon's SellersFunding, there are Kabbage's Amazon loans. Like SellersFunding, you can apply for a Kabbage loan online in just a few minutes and receive your loan in less than an hour (three days maximum).
Kabbage uses an algorithm to decide if you qualify for a loan and how much you qualify for. Unlike other loans, Kabbage focuses more so on your business's performance and metrics rather than just your credit score, though your credit score is still taken into account.
Options like Kabbage are good for those who need more cash in addition to what they can get through a SellersFund loan. There are a handful of lenders like Kabbage that specialize in providing loans for small businesses, and here are just a few:
7. Factoring
For Amazon sellers that offer installments for high-priced products, factoring may be an option. Factoring is a type of lending typically used by companies that offer subscription services.
Let's say the borrower (you) knows that on the 30th of every month they'll receive $10,000 from their customers. However, that means they'll spend the rest of that month waiting on their funds. To speed things up, they can borrow money from a lender based on the amount they know they're going to be paid on the 30th, usually at a discount. In this case, we'll say they borrow $8,000.
When the 30th comes around, they pay their lender $10,000. They may have lost $2,000, but they were also able to support their business for the month. Factoring is a high-cost loan, but it's short-term and fast, which makes it a quick sting. It shouldn't be your primary source of funds, but it can give you an espresso boost of funds when you need it.
8. Traditional Lending
Although traditional lenders aren't always as savvy to the needs of Amazon FBA businesses, you are still running a small startup. That means you can apply for the same types of loans that traditional small businesses apply for.
Working capital loans are the standard loans that small startups apply for. As the name implies, they're meant to cover the short-term working needs of your business. They're not an investment, just something to help you become operational.
Working capital loans are usually easy to apply for. Applications are processed quickly, and you can use loan aggregator sites to apply to multiple lenders at once.
9. Crowdfunding
Crowdfunding is a modern solution to a modern problem. Popularized by websites like Kickstarter and GoFundMe, crowdfunding involves rallying the people to your cause, funding your product a few dollars at a time.
You generally won't get much per investment with crowdfunding, as the funding is coming from everyday people who are just interested in your idea. This can make it a little harder to get your business up and running, but it also means you'll have loyal customers at the end of it.
Unlike other types of loans where you have to repay what you've borrowed, you generally only need to provide crowdfunders with a reward for their support when your business finds its footing. This usually means giving them your product before anyone else.
10. Merchant Cash Advances
Merchant cash advances, or MCAs, are one of the fastest ways for FBA startups to get funds for their business. You can apply for them online, don't need to have great credit to be approved, and will sometimes see the funds in your account within a few hours.
As you might have guessed, there's a catch. MCAs have extremely high-interest rates, usually in the triple digits. Not only that, but you repay this type of loan directly from the sales your business makes, which means you're not going to see a hefty percentage of your first-year sales if you take out one of these loans.
All that said, if you're in desperate need of funding and out of other ideas, MCAs make a solid last resort option. There's no collateral, so despite the high-interest rates, they're not too high risk.
How Much Does An FBA Startup Cost?
Now that we've gone through all of your different funding options, it's time to figure out how much your FBA startup is really going to cost. Knowing your costs will help you know how much you really need to borrow and if you have the means to fund the venture on your own.
Product Costs
The first cost that you can't get around is product costs. Even if you're making your product yourself, there's still going to be a materials cost that goes into creating the product. Figure out how much it's going to cost per product and how many products you're going to order.
To keep your costs down as much as possible, choose products that are smaller in size. These products cost less to ship and store.
Inventory and Shipping Costs
Speaking of shipping and storing, let's talk about inventory and shipping costs. The more of a product you purchase at once, the more manageable these costs are going to be. However, that also means you'll have to make more sales, so if you're just looking into your first shipment of product, try to shoot for $1,000 or less.
Marketing Costs
Marketing can give your new store a much-needed boost. Luckily, marketing on Amazon is relatively simple. The site itself has abundant marketing tools that are cost-effective. Plan to spend around $500 on marketing for your first batch of products. That's enough to raise awareness about your product and sustain your new business with sales.
Analytics Software
Finally, we have analytics software. While this is an optional expense, it can give you a massive advantage over your competition, especially since so many of them are going to be using it themselves.
Final Thoughts
Though launching any new business is stressful, costs thankfully aren't as high for Amazon sellers as they are for many other types of businesses. And as we have illustrated, there are many ways to fund an Amazon startup. We hope this article has given you the ideas and tools you need to make your Amazon business a success.