This is the first in a series of five installments about types of Amazon Marketplace Sellers and the financing options available.
Amazon has become a household name for online shopping. The Amazon Marketplace, which allows third party sellers to market their wares, has motivated scores of entrepreneurs to start their own businesses and provides an additional sales outlet for existing retailers and manufacturers.
In 2014, Amazon’ two million sellers worldwide sold an estimated $37 billion – $40 billion in sales, which represents just under 40% of Amazon’s total marketplace sales. That’s a lot.
Amazon has become an important sales channel for small business and the empowerment of entrepreneurs. But Amazon is a highly competitive, efficient ecosystem that requires sellers to be focused, disciplined and, at the same time, flexible. Of course money management plays a vital role in the equation and it is a variable that can drive success – or failure.
As Amazon sellers continue to expand their existing operations by joining the Marketplace, inventory must be purchased with growing consistency. The sellers’ circumstances will determine whether they can fund this inventory on their own or whether they should seek out some form of financing. According to Jason Fleming, Director of Sales at online lender Dealstruck, there are five basic types of categories that Amazon Marketplace Sellers fit into, each with its own financing options. This post is about the first category; new sellers with limited time in business.
Scenario 1: Brand new seller with no sales or company credit history.
Startups often have few options for securing business loans, and online sellers are no different. “New sellers are likely to be limited to cash savings on hand and whatever their open availability happens to be on personal credit cards,” Fleming suggests.
- Pros: The cost of capital for savings is free, and credit cards may be relatively inexpensive, allow you to earn rewards points, and provide the seller an opportunity to build business and personal credit.
- Cons: You will start with a relatively limited amount of capital to work with, and access to capital is unlikely to grow as quickly as the potential inventory needs of your business. Finally, piling on credit card debt could hurt your personal credit score, making it more difficult to pursue larger financing down the road.
- Tip: Pay your full amount back as you sell your inventory. This can help you to build a strong repayment history, if you decide to seek business financing in future months.
Read the next installment for information on the second type of Amazon Marketplace Seller; those with at least two years in business and are growing.