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Is Amazon's New Small Business Lending Service The Right Choice For Your Business?

Amazon-Financial

Source: by Drew Hendricks - Forbes

Amazon seems to have branched out into every business imaginable. So last year’s news that the company would be offering loans to its online sellers wasn’t too surprising. After all, Amazon is often considered the Wal-Mart of the Internet, and Wal-Mart has broken intothe lending business, as well.

For Amazon sellers, the loans are welcome in the face of repeated rejection from other lenders. Designed to show its support of the many sellers in its marketplace, the lending program was offered to merchants. Loans are provided through Amazon Capital Services, Inc. and are meant to serve as an alternative source of funding for those sellers who are unable to secure funding through traditional lenders.

How to Participate

Businesses can’t simply contact Amazon to request a loan. The business first register as an Amazon seller and begin selling items through the company’s storefront. This may not be a viable option for many businesses in light of the sizable cut Amazon takes from every sale. However, the exposure Amazon can give a small business may be well worth it. Amazon has provided a Getting Started guide to help merchants begin.

But even being a merchant doesn’t guarantee you’ll qualify for one of Amazon’s small business loans. The company extended the offer to merchants who it seems to be top performers. In addition to simply noting a merchant’s sales data, Amazon also has the ability to gain feedback from that merchant’s customer base. This gives Amazon data about whether a business is customer-focused or not.

Interest Rates

Merchants who had been offered the loans told the Wall Street Journalthe loans were valued between $1,000 and $38,000. These loans were at rates that were better than the average credit card interest rate, averaging around 14%. But those who reported they were offered the loans were high-volume sellers through Amazon. This emphasizes the importance of not only selling through Amazon, but also becoming a power seller on the site.

Amazon is reportedly interested in growing its lending operation, with one spokesperson even hinting that the loans may be offered to overseas providers in the future. But there are issues with trusting Amazon with such a huge part of your business, and those issues don’t just come with the lending part of being an Amazon seller.

Pros and Cons

For businesses interested in growing their businesses through Amazon and potentially qualifying for a loan through the site, there are several things to consider. Obviously, one of the biggest benefits is that you’ll be able to reach a large number of consumers through the popular online marketplace. When a consumer searches for the item you’re selling, you’ll be provided as an option alongside other sellers. You’ll also have access to Amazon’s review system, providing a boost in sales for customer service-focused businesses.

However, there are some downsides to selling through Amazon. Fees aside, many businesses find that Amazon inhibits their ability to build their brand, putting the focus on the products being sold rather than the name of the company selling it. A customer may come back to Amazon repeatedly to buy the same product from you and never even know your business’s name. Sure, you can provide inserts and coupons in your product’s packaging, but those customers are likely to go back to Amazon as a trusted service provider, even if your company is doing the fulfillment.

Credit Cons

This surrender to Amazon’s control can make a business owner feel as though he or she is working for someone else, rather than running a business. This feeling would only be exacerbated by accepting a loan from the company. While taking out a loan with a bank or other financial institution also puts a borrower in debt to that institution, taking out financial assistance from Amazon could put the business in an awkward situation. It would be similar to a renter of a bricks-and-mortar store taking out a loan from the property owner.

For Amazon, providing loans to merchants is a risky move, so businesses can be sure the company is benefiting from it. Primarily, the more successful Amazon’s merchants are, the more money Amazon makes. Helping businesses succeed by providing loans will ensure Amazon’s success long-term. Additionally, the interest rate will provide the company an additional source of funds.

Small business sales are a vital part of Amazon’s annual income, reportedly making up more than ten percent of the company’s annual sales. Sellers get a loan more quickly than they would through a lender, helping them survive.

Amazon reportedly looks to offer checking accounts...
Arizona Poised to Accept Tax Payments in Bitcoin
 

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Monday, 10 December 2018

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