Amazon Lending discontinues direct loans: Top alternative financing solutions for sellers

Central to the success of countless sellers was Amazon Lending, a financial lifeline that extended crucial capital to fuel business expansion. However, Amazon's recent decision to end its in-house term loan service has sparked considerable debate in the entrepreneurial and financial communities. 

As confirmed to Fortune on March 6, 2024, this shift signifies a major change in how Amazon supports sellers financially.

Furthermore, this development prompts a broader discussion about the future of financial assistance for small and medium-sized businesses (SMBs) on the platform. 

In the article, we’ll cover the implications of Amazon Lending shutting down and the alternative financing options available.

What is the Amazon Lending program?

Amazon business lending offers a convenient financing option for eligible small and medium-sized businesses in the US. This invite-only program features a straightforward application process with no paperwork and quick approval.

The funds can be used for various business needs — such as growing inventory, marketing, or purchasing new equipment. Financing amounts range from $1,000 to $750,000 with terms of less than 12 months. Repayments are made daily or weekly, depending on the agreement.

Here’s how an Amazon seller loan works:

1. Choose a loan term: Pick a term that suits your needs and get pre-qualified. If eligible, you receive the loan upfront.
2. Access funds: Once approved, the funds are deposited directly into your Seller Account for easy access.
3. Automatic repayment: Repayments are automatically deducted from your Amazon sales, ensuring timely payments. If your sales don’t cover the repayment, Amazon will charge you using the linked payment method.

NOTE: Keep in mind that these funds can only be used for Amazon-related purposes.

The unexpected closure of Amazon Lending

Amazon Lending, once known for its streamlined application process and quick funding, was a game-changer for many sellers. 

The Amazon Lending program will continue to manage existing loans for sellers who secured them before March 6, 2024, but no new loans will be issued. 

While Amazon has been silent about the reasons behind the change, speculation suggests it could be due to increased competition in the lending market or a strategic shift in Amazon's overall business approach.

Impact on sellers due to Amazon Lending shutdown

Independent sellers are the backbone of Amazon’s marketplace, contributing to over 60% of all goods sold. With Amazon Lending shutting down, the effects on these sellers are undeniable. 

The sudden loss of a key funding source has left many sellers grappling with cash flow issues. This disruption hinders their ability to invest in growth and manage daily operations effectively.

Albert Grazi, a top-rated Amazon seller making about $5 million a year from water filtration products, highlights the mounting pressure on sellers. 

“It’s getting harder to sell on Amazon. We're being squeezed from all sides—with the introduction of new business fees and now the loss of lending support.”

For many sellers, the closure of Amazon business loans means rethinking their financial strategies to continue thriving in a competitive marketplace.

Alternatives to Amazon Lending for eCommerce sellers

Securing financing for Amazon sellers can be challenging, as online businesses often lack the physical assets that traditional brick-and-mortar stores use for collateral.

If you previously relied solely on Amazon or were planning to apply this year, you’ll need to explore alternative funding options to support your e-commerce business. 

Let’s explore some of the top financing solutions available to keep your Amazon business funded and thriving.

1. SBA microloans

The US Small Business Administration (SBA) provides microloans ranging from $500 to $50,000 to assist small businesses. These government-backed loans come with lower interest rates and flexible repayment terms, making them an excellent choice for startups or businesses requiring smaller funding.

To apply, you can submit a financial projection outlining your sales plan and how you'll repay the loan. Collateral is usually required if you can’t repay the loan.

Benefits:

• Accessible even with a low credit score.
• Competitive rates and extended repayment terms.
• Monthly payments are consistent and easy to predict.

Short term loan

Ideal for covering immediate needs like inventory restocking or shipping costs, short-term loans provide a fixed amount of capital with set interest rates. 

You repay the loan through monthly payments. Unlike traditional loans, short-term loans typically don’t require collateral and can be more accessible for those with less-than-perfect credit.

While bank term loans often come with higher fixed interest rates, online lenders usually have more flexible eligibility criteria and may offer more favorable terms.

Benefits:

• Fast capital access.
• Tax-deductible interest.
• Fixed rates and no collateral.

2. Merchant cash advances (MCAs)

Merchant cash advances (MCAs) offer a quick way to get a capital infusion, although they are not technically a form of financing. 

Instead of fixed payments, you repay by giving a fraction of your sales (daily or weekly) until the advance is fully paid off. While convenient, they come with some trade-offs and should be used with caution.

Benefits:

• Easy and fast approval.
• Repayment flexibility.
• No collateral or credit score required.

You might also like to read: Is a merchant cash advance right for your business needs?

3. Revenue-based financing

Revenue-based financing provides greater flexibility compared to other funding options. Borrower receives a lump sum upfront and repays a percentage of your company's gross revenue on a monthly basis. This means that if your business performs poorly, your payments will be lower, reducing the risk of cash flow problems.

For eCommerce businesses seeking flexible financing, Stenn offers a revenue-based financing option tailored for the industry. This solution provides the working capital needed to grow your business without the strict terms of traditional loans.

Benefits:

• Flexible repayment. Payments adjust based on your revenue.
• You may not need to show your credit score to get funded.
• Quick access to capital.

4. Inventory financing

Inventory financing allows you to secure short-term loans using your inventory as collateral. Typically, you can borrow around 80% of the inventory's value. Many inventory financing providers can send the funds directly to your supplier. In some cases, you can even finance inventory before it’s manufactured.

Benefits:

• Funds can be sent straight to your suppliers.
• Minimal paperwork required.
• Flexible repayment option.

Relevant read: Inventory financing 101: Types, pros, cons & alternatives

5. Business lines of credit

A business line of credit is a flexible financing option designed to cover regular expenses, such as buying inventory or managing cash flow. It functions like a credit card—you’re given a pre-determined credit limit that you can draw from as needed. 

You have a credit limit that you can borrow against. As you repay the borrowed amount, your credit becomes available again.

Benefits:

• Versatile fund usage.
• High credit limits to accommodate larger expenses.
• Builds business credit if managed responsibly.

6. Peer-to-peer business loans

A peer-to-peer (P2P) business loan functions similarly to a traditional term loan but is funded by individual investors rather than banks. Many small business owners find P2P loans appealing because they are often easier to qualify for compared to bank loans. P2P platforms facilitate the process, handling everything from applications to underwriting and repayments, but they do not provide the funding themselves.

Repayments typically involve monthly installments with interest and fees, which can be costly.

Benefits:

• Easier qualification.
• Wide investor network.
• Quick and streamlined application process.

Which Amazon Lending alternative is right for my business?

Selecting the appropriate financing option requires a thorough assessment of a business's financial health, growth stage, and risk tolerance. Sellers should consider factors such as:

• Cash flow needs: Short-term or long-term capital requirements.
• Repayment terms: Flexibility and affordability of repayment options.
• Risk tolerance: Willingness to share future revenue or equity.
• Business growth stage: Early-stage, expansion, or mature business.

Examining these elements closely enables sellers to make informed decisions and pick the financing option that best matches their business needs.

You might also like to read: The secret to funding your eCommerce business fast

Looking forward

The closure of Amazon Lending marks a significant turning point for SMB sellers. While the loss of Amazon Lending is undoubtedly a setback, it also opens doors to explore new funding solutions.

By understanding the various financing avenues available and conducting thorough research, sellers can navigate this new financial landscape and position their businesses for continued growth and success.

Traditional banks may not understand e-commerce, but Stenn does. We offer flexible financing tailored specifically for e-commerce businesses. 

Don’t let funding gaps slow you down—partner with Stenn today and secure the capital you need in as little as 24 hours.

Frequently asked questions (FAQs)

Is it hard for Amazon sellers to get financing?

Acquiring financing can be more challenging for e-commerce businesses, including Amazon sellers. However, having a detailed business plan that clearly demonstrates the financial projections of your Amazon business can make you more attractive to many lenders.

What financing option is best for my Amazon business?

Choosing the best financing option for your Amazon business hinges on your specific operational requirements and goals. If you need help managing cash flow, a business line of credit might be ideal. 

Alternatively, if you require a one-time lump sum of cash and have predictable sales, revenue-based financing could be a better fit. Assess your business's unique financial needs and market position to identify the optimal capital acquisition strategy.

How has Amazon Lending changed its loan offerings?

Amazon has shifted its approach by discontinuing the direct underwriting of term loans. However, it will continue to service existing loans while also promoting third-party financing options for sellers. This change impacts how Amazon sellers access funding through the platform.

How can I get an invitation to Amazon Lending?

Amazon Lending operates on an invite-only basis. To find out if you're eligible, log in to your Seller Central Account and look for an invitation from Amazon Lending. Typically, sellers with consistent sales on Amazon for a year or more are likely to receive an invitation.