Starting an Amazon business can be a great way to make money, and with the opportunity for this comes risks. Financing your Amazon business is no exception, as there are many ways to finance your Amazon business. With the plethora of available options, it’s easy to become overwhelmed.
Before choosing which option is right for you, you must understand what type of loan can be used on an Amazon business. Two kinds of loans are available for funding your Amazon business: secured loans and unsecured loans.
Secured Loans
If you have an already established business, this may be a better option to consider when it comes to financing. An asset of the borrower’s backs secured loans, so they’re easier for lenders to recover in case of default.
That makes them available with more attractive interest rates than unsecured loans because the lender is less likely to lose their money if you can’t keep up with your payments.
Generally, secured loans are available for small and midsize business owners with an average credit score. To qualify, you’ll need to have a personal guarantor of the loan who owns more than 80% of the company value. The interest rates can be between 6-12%, depending on the lender and your credit score.
Unsecured Loans
Since an asset of the borrower doesn’t back unsecured loans, they’re harder to qualify for because you’ve nothing to offer as collateral to protect the lender’s money. The average business owner will need an excellent credit score to get approved with these loans since it shows lenders that you’re credit-worthy.
Unsecured loans have higher interest rates because the lenders risk not being paid back. However, they usually have more flexible repayment terms and can even be used for personal use if needed.
Business Loans for Amazon Sellers
In most cases, you’ll have to have been in business for at least three years before being able to qualify for a loan from your bank. When it comes to a loan for an Amazon business, banks will not offer you any loan unless you can prove that you have had success with your Amazon store for at least one year.
That’s why it may be a great idea to consider alternative options when looking to finance your Amazon business. There are multiple different types of lenders that you can use to get the money you need without jumping through hoops just to get approved. For more details, you may check SellersFunding.
What Are The Benefits?
When you’re choosing which type of financing to use on your Amazon business, you must evaluate the benefits of each option:
Security of Secured Loans
Assets of the borrower’s backs secured loans, which means that if you default on your payments, then the lender can recover their money through repossession or sale of the asset. That’s what makes secured loans more attractive to lenders because they know that they’ll be paid back in full.
Availability of Unsecured Loans
If you have a record of a high credit score, then you’ll find that unsecured loans are available to use on your Amazon business, even if you have nothing else to offer as collateral.
These loans can take the form of a line of credit or be secured by a personal guarantor. However, unsecured loans usually come with higher interest rates because of the higher risk for lenders.
Predictability of Repayment Terms
The repayment terms are more predictable with secured loans, which means that you’ll know exactly how much money you need to pay each month towards this loan. Int gives you a clear picture of your financial situation and allows you to plan out your finances better than if you had an unsecured loan.
The flexibility of Unsecured Loans
Unsecured loans are more versatile than secured loans because they can be used for business and personal purposes if needed. It means that you get access to more funds than with a secured loan, but it usually comes with higher interest rates.
Area of Coverage
Secured loans tend to be more available for small and midsize business owners rather than larger companies because it’s assumed that the larger your company, the less likely you’re to default on your payments.
If you have an established business with a long track record of success, then you’ll find it easier to get approved for a secured loan that can be used on your Amazon business.
If you’re already an established business, these are the types of loans available for financing your marketplace growth.
Regular Business Finance Options
If you’re looking for regular finances to grow your Amazon business without using any financing, then you’ll find that the options available vary depending on your company structure:
Business Lines of Credit
These are unsecured loans that give you access to a set amount of money each month as long as you need it. The repayment terms on these lines of credit depend entirely on the lender and how much you borrow from them and can be used on your Amazon business for anything you need.
Commercial Loan
This loan is unsecured and can range from USD$1M to USD$5M, depending on the lender and company needs. The repayment terms vary as well but tend to fluctuate with the Prime Rate – meaning these loans are tied to the federal discount rate of the United States.
Cash Advance on Credit Cards
While you don’t need a large credit score or collateral for this type of financing, you must be very conservative with how much money you borrow from your credit cards because interest rates tend to be very high. If you’re down-and-out for a cash advance from your credit cards, consider it as a last resort because you’ll end up paying more in the long run.
What’s A Good Financing Option?
If you’re looking for a fast-paced option with quick payments with low-interest rates, you should consider an Amazon marketplace loan because it’s very easy to get approved for these types of loans.
If you have collateral, a high credit score, and established business credentials, then you should’ve no problem getting approved for one of the loans available on your Amazon business.
If you’re looking to take out financing with your Amazon company based on what you have read so far, it’s also essential that you consider the interest rates involved with these loans and what you’ll use the money for.
In Summary
Taking out a loan on your Amazon business has its benefits and disadvantages, depending on what type of financing you choose. Secured loans are considered the safest type of financing, but you’ll need to have a high credit score and collateral to qualify. Unsecured loans come with higher interest rates, but they’re more flexible and can be used for personal and business purposes.
