Many small and midsize businesses (SMBs) are continually facing cash crunches.
As sales rise, so do revenues. But the money often flows out as fast as it comes in. Inventory must be purchased, salaries need to be paid and business expenses managed.
For online sellers, the dynamic nature of sales can lead to dry periods where the business’ survival is in question. Access to cash is available through bank loans and other third-party financiers, but it usually comes with fixed monthly payments. This does nothing to alter the cycle.
Amazon (NASDAQ: AMZN) is now offering an option for these SMBs that makes capital available without the fixed monthly repayment options. The company’s new merchant cash advance program ties repayment to future sales.
The program is administered by Parafin, a provider of growth capital for sellers.
“Amazon is committed to providing convenient and flexible access to capital for our sellers, regardless of their size,” said Tai Koottatep, director and general manager of Amazon WW B2B Payments & Lending. “[Tuesday’s] launch is another milestone in strengthening Amazon’s commitment to sellers and builds on the strong portfolio of financial solutions we already provide.”
The latest data from Jungle Scout found that Amazon holds a 37.8% e-commerce market share overall and 82% of its online products are supplied by third-party sellers, representing about 57% of revenue on the platform, according to Statista. Many of these sellers are SMBs.
According to data from Parafin, 51% of SMBs mention cash flow as their biggest business challenge. The average time spent on paperwork to close a traditional bank loan is nearly 25 hours, the company said. Parafin offers financing to platform sellers based on sales, not credit scores.
The merchant cash advance is available in amounts ranging from $500 to $10 million, with a flexible payment schedule determined by a fixed percentage of the seller’s gross merchandise sales until the funding is paid off. There are no minimum payments, no interest (besides a fixed capital fee) and no collateral required, Amazon said. Most importantly, payments are only required during periods when a seller has made sales.
“This latest offering significantly expands sellers’ reach and capabilities and broadens their access to capital in a flexible way — one that helps them control their cash flow, and by extension, their entire business,” said Koottatep.
To access the financing, a seller must have been selling on Amazon.com for at least three months. Amazon said sellers can access capital within days and use it for nearly any business need, including business expansion, protecting margins, product development, inventory management or managing cash flow.
There is no fixed term for the cash advance, no personal guarantee required, no credit check and no late fees. Select U.S. businesses are eligible for the program now, with widespread availability for most sellers by early 2023.
“We founded Parafin with the mission to grow small businesses, and we’re thrilled that we have the opportunity to do that by providing Amazon sellers with this merchant cash advance option,” said Vineet Goel, co-founder of Parafin. “It’s a privilege to count ourselves among Amazon’s suite of financial solutions, and we look forward to making a difference for Amazon.com sellers looking to expand their business.”
Click for more articles by Brian Straight.
You may also like:
Black Friday is so 2020 — welcome to the longest holiday shopping season ever
Massive overcapacity expected to hit holiday parcel delivery market
As big retailers fret over holiday sales, SMBs are poised for success
