Did you know that in 2023, most sellers will be looking for ways to grow their business within Amazon itself?
Roughly 50% will investigate other ecommerce platforms, and a similar percentage will consider expanding into international markets.
However, these merchants can secure external financing to boost their working capital and take advantage of growth opportunities as they arise.
New to the world of small business financing? We have you covered.
In this article, we'll examine the fundamentals of an Amazon FBA business and present the 5 best options for financing one.
Join in and learn more detail!
Amazon FBA, or "Fulfillment by Amazon," is a service that lets sellers keep their items in Amazon's fulfillment centers.
When a customer places an order, Amazon takes care of picking, packing, shipping, customer service, and returns.
With this service, sellers can use Amazon's massive network of warehouses, shipping infrastructure, its good reputation and large customer base to grow their businesses.
Sellers can also use Amazon FBA to get the benefits of Amazon Prime, which can boost sales and keep customers coming back.
Amazon charges fees for FBA services, like storage fees, fulfillment fees, and other optional services.
According to the Jungle Scout, here are the top 7 best Amazon FBA selling strategies to consider:
1. Listing management — Check Seller Central and live listings frequently. Check your photos, descriptions, and reviews. This may improve your product.
2. Advertising optimization — To get the best ads, tweak PPC campaigns every two weeks. Run keyword reports and adjust them according to the performance.
3. Expanding product line — Selling on Amazon may inspire new store offerings. Find low-competition keywords and new product ideas in a related market.
4. Brand building — Brand loyalty boosts Amazon sales. Use social media to promote your well-designed, packaged product. Brand-registered Amazon sellers have more marketing tools.
5. Inventory management — Meeting demand without overstocking Amazon's warehouses is crucial. To track needs and reduce storage fees, Amazon recommends keeping 3–6 months of inventory (except during the holidays).
6. Account health — Monitor your Amazon account to avoid suspension. To prevent fakeness and unsafety claims, focus on customer service and product policies.
7. Hire a virtual assistant — A virtual assistant can handle customer service, content creation, product sourcing, PPC campaign optimization, inventory management, and listing troubleshooting for your company.
Amazon FBA (Fulfillment by Amazon) offers the following key benefits:
✔️ Prime Eligibility — Prime shipping can boost sales and attract more customers.
✔️ Increased Visibility —Free shipping can boost your product's visibility on Amazon.
✔️ Faster Shipping — Fast shipping from Amazon's fulfillment centers and shipping infrastructure boosts customer satisfaction and sales.
✔️ Customer Service — Amazon handles FBA product returns and refunds, saving sellers time and resources.
✔️ Storage and Inventory Management — Amazon's fulfillment centers store and manage inventory, reducing your warehousing and logistics needs.
✔️ Multi-Channel Fulfillment — Amazon FBA lets sellers use Amazon's shipping and customer service infrastructure to fulfill orders from other channels like their own website or other marketplaces.
Now that you have all the information you need, it is time to find out top 5 ways to fund an Amazon FBA business.
This section will show you 5 different ways to fund your Amazon store that includes an explanation of each, a description of how it works, and who is it best for.
Let’s dive in!
The best financing alternative available to Amazon FBA sellers is asset-based financing. This is a low-risk financing method, with the funds backed by the value of the seller’s inventory. Oftentimes, this financing route comes with flexible repayment plans and doesn’t require the seller to make a personal guarantee for the funds, unlike traditional financing methods.
The funds provided by asset-based lenders are flexible, so the seller can use capital however they’d like in order to grow their business.
When choosing an asset-based lender, such as Myos, Amazon FBA sellers can apply for a loan within minutes.
They’ll share the risk of the financing with Myos, who requires lean documentation and business history requirements, doesn’t charge any annuities, and makes no credit checks.
Suppose that our fictitious company creates and sells machinery for the industrial sector. There is a lot of stock on hand, but sales have been slow, which is causing cash flow issues for the company.
In an effort to improve their cash flow, the company decided to seek asset-based financing. To illustrate how asset-based financing works, consider the following scenario:
Companies with valuable assets that are struggling with cash flow or needing to finance growth opportunities may benefit from asset-based type of financing.
One way for Amazon FBA sellers to secure capital is through Amazon’s proprietary lending platform.
They offer both term loans and lines of credit to eligible merchants and generally provide a quick turnaround for approvals.
Amazon lending is a type of loan that can range from $1,000 - $750,000, at interest rates around 10%.
There is a relatively short repayment period for these loans, which leads to higher monthly payments, regardless of how many Amazon sales you’re bringing in.
It’s important to note that the term loans can only be used to restock Amazon inventory, while their line of credit has more flexibility like to fund staffing and advertising costs.
A small business sells handmade jewelry on Amazon. The company is expanding its product line and marketing to attract new customers due to rapid growth.
The company lacks cash to fund these initiatives. Here is a possible scenario for Amazon lending:
Amazon Lending can help small and medium-sized Amazon sellers grow and expand. The program provides fast funding and repayment terms based on sales and cash flow.
Sellers with good customer reviews, no complaints in the past six months, and at least $10,000 in sales over the last year can use this.
However, it is important to note that Amazon Lending is invitation-only, which means that it is not easily accessible.
Online merchants looking to boost their Amazon sales may consider business loans from a traditional bank.
These may be harder to acquire, though there is more flexibility from this financing option regarding what the funds can be used for.
Most of the time, these institutions will require sellers to have a meaningful length of business history, a formal pitch deck, a business plan, and a loan proposal during the application process.
Banks are generally risk-averse, so online sellers with limited sales history and performance may have a tough time being approved.
Additionally, banks will require the business owner to make a personal guarantee for the loan and put up collateral in the case that the Amazon FBA business fails so they can still recapture their funds.
Let's say a local business owner is looking to invest in some new machinery in order to grow their company. An example of a loan application for a company could look like this:
Business loans can help companies of all sizes to grow and expand. The lender and business's creditworthiness will determine the loan's interest rate, repayment period, and collateral.
Thus, startups and companies with bad credit history may not be eligible for this type of loan.
When securing revenue-based financing, a lender will approve applicants based on a number of factors, including sales history and revenue projections, in addition to other factors.
Lenders will provide the Amazon FBA seller with the capital, then collect an agreed-upon percentage of the monthly revenues until the loan has been fully paid off.
One of the benefits of this arrangement is that the amount of the payments correlates to the Amazon sales the business brings in.
This means that the payment will be lower in months with lower sales and higher in months with higher sales.
A small software company wants to expand and invest in product development. The company isn't profitable yet, so they don't want debt with fixed monthly payments. Revenue-based financing as a chosen option will work like this:
If your company needs money but you'd rather not take on fixed-rate debt, consider revenue-based financing.
But because of the potential for revenue fluctuations, this may not be a good financing option for younger businesses with less track record and limited performance.
While typically associated with the hospitality and restaurant industry, merchant cash advances can also benefit Amazon FBA businesses.
This type of funding allows borrowers to access a cash advance for up to a six-month period, which they can then use to purchase more inventory, pay for marketing campaigns, or any other use they see fit to grow their business.
As repayment, the MCA providers will deduct a certain percentage from each of the store’s credit and debit card sales until the funds have been fully paid off.
Again, like with the revenue-based financing model, the repayment schedule corresponds to the amount of sales the store brings in.
A small restaurant wants to expand and buy new equipment. The restaurant needs a merchant cash advance to make the purchase and decides to request a merchant cash advance.
Here is what to expect:
The terms "holdback" and "retrieval rate" are used to describe this method of compensation. If the provider required 20% of the restaurant's daily sales to repay the advance and the restaurant made $10,000 in sales, the provider would take $2,000 from the restaurant's sales on that day.
Merchant cash advances can help businesses with predictable sales volumes get capital quickly.
However, MCA fees and interest rates make them more expensive than traditional financing making it a challenging type of financing for businesses with fluctuating sales volume.
We hope that these top 5 Amazon FBA financing options can aid in your decision on how to create a consistent cash flow for your business.
We can all agree, though, that asset-based financing is the best choice for all sizes of businesses because it is simple to apply for and has fewer restrictions when compared to all other options.
Not to mention the minimum documentation and risks that it takes to apply.
Therefore, we suggest you to consider Myos as the best option if you are a startup or a business that doesn't want to sign a personal guarantee and needs money quickly.
You only need to ensure that the following conditions hold true:
If you need to replenish stock, invest in marketing, or cover ongoing expenses, all you need is some collateral, and that collateral can be your products.
👍 It is possible to pledge only goods as collateral.
👍Flexible terms of payment.
👍AI can evaluate your products.
👍Purchase and stock financing are available funding strategies.
👍You can borrow between £10,000 and £2,500,000.
👍Apply in 3 simple steps.
👍Quick response (within 72h).
Request your free, non-binding offer to safely and efficiently start growing your Amazon FBA business starting today.
According to the Jungle Scout, here are some numbers that sellers have reported about their income from selling on Amazon:
Private label – Make your own brand/label for your product.
Wholesale – Buying in bulk from a manufacturer or distributor to resell on Amazon.
Reselling/ Arbitrage – Buying and then reselling discounted products.
Dropshipping – Direct purchases from manufacturers who ship directly to customers.
Handmade – Crating your own products.
The initial investment needed to begin selling on Amazon will vary depending on whether or not you already have a product to sell. In fact, you can start selling on Amazon for practically no cost, or you can invest as much as you like.
According to the Amazon sellers: