The following is a sponsored post written by Victoria Sullivan of Paybility
It goes without saying that taking on financing for your business, no matter the source, is a very serious commitment, and isn’t right for every seller. If your business is growing and has revenue growth potential that is greater than the cost of financing, then raising money might be right for you.
Unfortunately, money doesn’t grow on trees, and getting working capital to invest in your business doesn’t come cheap, so you’ll have to ask yourself a few key questions:
- Am I stocking out or missing out on sales? If so, can I purchase additional inventory at a reasonable price?
- If I purchase more inventory, will it sell within a reasonable timeframe?
- Can I invest in operations that will help grow revenue (tools, people, fulfillment, etc)?
- How much revenue can I count on from a new product launch?
- Can I negotiate a discounted price from my supplier if I pay early or in cash?
Now that we’ve answered some serious questions, let’s check out 7 ways to raise working capital for your Amazon business:
1. Personal Savings
Although many businesses are strict about not commingling business and private funds, personal savings are the fastest and cheapest route to access working capital. Essentially, you are personally lending to your Amazon business, which pays you you back over time.
The major downside here, however, is that you only have a limited supply of capital and ultimately run the risk of depleting all of your savings.
2. Crowdfunding, Friends & Family
Although you can always ask others to invest in you Amazon business directly, crowdfunding sites like Kickstarter or Indiegogo can also be effective options. You’ll avoid paying interest, by “paying” through equity or rewards to your investors.
Unfortunately, there’s no guarantee you’ll get the working capital you need, since most crowdfunding sites have a minimum fundraising requirement.
In addition to the inherent risks of involving personal relationships with business, having others involved in your business also comes with a greater responsibility to deliver results.
3. Credit Cards
Opening new credit cards are not only appealing because of the “buy now, pay later” use-case, but also due to reward programs that actually put money back in your pocket through us of the card.
It is important to note the major downsides and risk of credit spending: you have to have good personal credit to qualify, your credit card will have a limit to how much spending power you can access, and you’re limited to investing in only what you are allowed to purchase with credit.
You have to be very strict in paying the credit card bills in full and on time, or you can quickly end up in a very expensive debt cycle, harming your personal credit.
4. Traditional Bank Loans & Lines of Credit
For well-established Amazon sellers (3-5 years in business, consistent sales, and physical operations) looking for an inventory loan, you could consider looking for financing from a bank, whether it’s a term loan (one lump-sum of cash) or a line of credit (a revolving pool of funds to access as you need).
Banks can potentially offer the lowest interest rates in the market, but the approval process is challenging. Endless paperwork, a manual review process (often including an on-site visit or two), and low approval rates for small businesses are all major hurdles in securing this type of funding.
5. Alternative Financing
The alternative or online financing industry promotes lenders that promise higher approval rates than banks, an easy online application, and faster funding. Buyers should beware that the loan offers often come with high interest rates and/or fees, short repayment terms, and daily or weekly auto-payments that start right away.
6. Amazon Lending / eCommerce Specific Financing
Several eCommerce platforms (Amazon, Shopify, PayPal, and Square, to name a few) offer loans or merchant cash advance products to their sellers. However, there are a few drawbacks.
Typically, these platforms have an “all or nothing” offer model: you can’t request a loan and the amount offered is non-negotiable. But, as inflexible the borrowing process can be, these platforms understand eCommerce businesses, the repayment terms are simple, and some platforms offer competitive rates to banks.
7. Advance Your Marketplace Sales
For most eCommerce sellers, sales on Amazon (and other marketplaces) can make up the majority of their overall revenue, which means they’re constantly facing payment delays and cash flow gaps.
There are a few financing solution services out there, like Payability, that purchase your receivables (sales not yet paid out), and advances that capital to you ahead of schedule. Payability offers next-day payouts with their Instant Access product, and a lump sum of working capital with Instant Advance.
Payability makes it easy for eCommerce sellers: no credit checks, fast approvals, seamless service, no debt, and no repayment schedule. But, like all financing, there is a fee for Payability’s service, and you have to give them restricted access to your seller account.
Hopefully you have an idea of how to approach financing for your Amazon business, enabling you to find the working capital solution that best fits your goals.
And if you’re interested in learning more about how Payability can help your business grow, visit www.payability.com.