With the help of financing through Amazon Lending, entrepreneur Jim Barron has grown his online retail business from zero to $15,000-plus per month in sales.
Barron finds products already selling on Amazon (but that don’t face steep competition) such as watch straps and recipe boxes, orders a generic version from a manufacturer and puts a twist on the product with his own branding and packaging.
"There were other people selling recipe boxes, but they had outdated designs or they were expensive," says Barron, who also blogs about his experience on his personal finance blog, AcceleratedFI.
As his business grew, Barron began using personal credit cards to finance inventory. But when his business hit the 12-month mark in July 2016, a message popped up in his Amazon seller account telling him he was eligible for financing. “You don’t even know this exists until it pops up in your account,” he says.
Here is what you need to know about Amazon Lending and how its loans compare with other small-business financing.
Amazon Lending at a glance
$1,000 to $750,000
Amazon Lending declined to provide rates.
Fixed monthly repayments of up to 12 months, with payments deducted from a borrower's Amazon account
Next business day
How Amazon loans work
Amazon is already the largest Internet-based retailer, but the company is expanding its footprint in small-business lending.
Since launching its Amazon Lending business in 2011, the tech giant has lent more than $3 billion in business loans to over 20,000 businesses in the U.S., U.K. and Japan that use the e-commerce platform, according to the company.
Borrowers receive a quick infusion of cash to finance inventory, and more than 50% of borrowers take a second loan through Amazon, according to the company.
How to qualify: You must be an Amazon seller, and borrowers are invited to apply directly on their seller account.
For instance, Barron received an invitation to apply for Amazon financing after 12 months using the platform, he says.
Loan amount: Amazon offers its merchants loans from $1,000 to $750,000.
Borrowing costs: The company does not disclose the rates on its loans, and a company representative declined to provide information. There are no origination fees.
Amazon told Bloomberg that interest rates on its loans are lower than those of credit cards and merchant cash advances. Annual percentage rates, which include other fees, for business credit cards are 12% to 22%, while MCAs carry APRs between 40% and 350%.
Barron, the Amazon entrepreneur, says his rates have been comparable to credit cards. His first two loans carried an interest rate of 15.9%, and the third one 16.9%. However, borrowers should note that an interest rate differs from the annual percentage rate (APR), which can include other fees and determines the yearly cost of the loan.
Repayment terms: The loans are repaid in fixed monthly payments, which are deducted directly from the borrower’s Amazon account. You can change it to biweekly, but you’ll be charged more fees for doing so, Barron says.
If you default on the loan, Amazon may try to collect on the unpaid balance of the loan by taking possession of your Amazon inventory or withholding payments owed to you from your seller account, according to the company’s loan agreement obtained by NerdWallet.
Amazon loan payment example: If you receive a $20,000 Amazon loan carrying an interest rate of 16.9% and a 12-month repayment term, you would make monthly payments of $1,823.
Amazon loans: Pros and cons
Fast and convenient funding: The application and financing process is fast and straightforward, since Amazon already has your sales history and personal information on file.
If approved for financing, funds are sent to the borrower within one day through the bank account the borrower has linked to Amazon.
“You don’t even have to fill anything out … it’s two clicks, and they deposit the money the next day,” Barron says.
High borrowing amounts: If eligible for Amazon Lending, you can borrow from $1,000 to $750,000. The maximum borrowing amount is based on your past sales performance on Amazon, and you’ll likely need strong Amazon sales to land higher amounts. For example, Barron’s first loan was for $4,000 as his sales were just picking up.
Good sales, not credit score, reign: Amazon may check one or more of your personal credit reports, according to a loan agreement. But Amazon identifies potential borrowers by looking at your sales history.
Follow-up financing: If you make good on your first loan and repay it on time, Amazon may offer to extend you another loan and at a higher amount.
That was the case with Barron, who says he refinanced his first $4,000 loan with a $8,000 loan, and later took out a $20,000 loan in February 2017, when his sales eclipsed $40,000 per month during the holiday season.
Available only to Amazon sellers: Amazon Lending is similar to Square Capital and PayPal Working Capital, which also offer financing to existing merchants based mainly on sales history. So non-Amazon sellers won’t qualify.
High cost, short repayment: Amazon doesn’t disclose the interest rates or fees on its loans. However, its rates are comparable to credit cards in some cases as Barron found. Repayment terms are shorter than typical business loans, maxing out at just 12 months, so your monthly payments could be higher depending on your total borrowing amount.
Amazon Lending vs. other small-business loans
Other potential financing options for Amazon sellers include personal and business credit cards, small-business loans and a business line of credit.
Business credit cards
Business credit cards provide flexible access to cash and can provide added benefits, such as rewards for spending on business expenses (such as gas, traveling and office supplies), sign-up bonuses and 0% promo APR periods.
Payments will likely be lower, as minimum repayments typically require you to pay only 1% or 2% of the balance each month. However, repaying only the minimum means you’ll pay more interest, increasing your total payback amount.
Also, business credit cards can help you build your credit score and separate personal and business expenses; interest paid may be tax deductible, too. Cards carry APRs from 12% to 22% but they could also have extra fees, such as annual fees, late fees and cash advance fees, and a higher penalty APR (as much as 30%) if you miss a payment.
» Need a business credit card? Compare NerdWallet’s list of best business credit cards.
Business loans provide a lump sum of cash upfront, repaid over a fixed time period. With longer repayment terms and high borrowing amounts, they are a better option for an expansion, such as buying equipment or purchasing or renovating real estate, or refinancing debt.
Business loans through banks typically carry the lowest rates you’ll find, with SBA loan rates ranging from 6.5% to 9%, repayment terms up to 25 years and borrowing amounts up to $5 million. However, you’ll need good credit and strong business finances to qualify, and you may also need to provide collateral.
Business loans through online lenders typically carry higher rates, but faster time to funding and looser qualifications than bank loans.
Business line of credit
A business line of credit may also carry lower costs than financing through Amazon, with rates typically ranging from just 5% to 12% through banks and 8% to 99% with online lenders.
It’s a good option if you need to manage cash flow or buy inventory. If you have excellent personal credit and strong business finances, you can qualify for lower rates. However, you can expect a lengthier application-to-funding process compared with Amazon.
» If you’re looking for a line of credit, check out our picks for business lines of credit.