Recently, Amazon announced that it is extending an all-new mechanism for third-party sellers to get access to individual funding for growing as well as scaling the businesses on the platform. Amazon unveiled its Amazon Merchant Cash Advance Program that will not require personal guarantees and credit checks. To top it all, you can look forward to making payments only when a successful sale has been made.
Amazon is known to offer seamless funding options for the respective sellers with the help of the Amazon Lending Platform. Lately, in November 2022, Amazon unfolded its all-new product in addition to the comprehensive array of lending products. It is the Amazon Merchant Cash Advance Program. It is regarded as yet another hassle-free and quick option for funding for Amazon sellers. Is this funding option right for your business? Let us find out!
What is the Amazon Merchant Cash Advance Program?
Amazon recently extended its partnership with Parafin, a pioneering service provider of growth capital for sellers and merchants in the United States of America. The partnership was extended to deliver access to cash advances to online sellers and merchants on Amazon. Qualified borrowers are capable of borrowing or receiving anywhere between $500 and $10 million through the Amazon Merchant Cash Advance Program.
The program serves to be a non-revolving type of financing that offers sellers access to quick and easy funding. Qualified borrowers are able to pay a fixed amount of capital fee with the help of repayments that are linked to future sales. There is the absence of any late fees, interest rates, or even additional fees that are charged out of the borrowers.
How does the Amazon Merchant Cash Advance Program Work?
Amazon has partnered with Parafin to deliver access to additional capital to the sellers or merchants through the MCA or Merchant Cash Program. It is a sales-centric financing option that enables qualified merchants or sellers to borrow ample capital to fund the respective business.
The MCA program will not require the merchants to ensure minimum payments or bring forth any collateral. They are also not required to pay any late fees or interest. This implies that the payment is needed only when actual sales keep taking place. This payment is associated with part of the respective sales. The option of the MCA program for merchants is beneficial as sellers are no longer required to offer the standard loan requirements -like undergoing a credit check or presenting a personal guarantee.
How will Parafin and Amazon make money out of the Amazon Merchant Cash Advance Program? Sellers who are borrowing capital out of the program are expected to pay a fixed amount of capital fee. However, this amount is not yet disclosed by the agreement. The program will be offering a flexible mode of payment schedule with the help of a fixed percentage of the Gross Merchandise Sales of the merchants.
Who are Eligible to Apply for the Amazon Merchant Cash Advance Program?
As per the announcement made by Amazon & Parafin, to gain access to additional capital out of the program, you are expected to be a seller or merchant on Amazon.com for at least three months. There has been no specification for the minimum valuation or sales requirement.
Until now, the MCA program has been made available to select sellers or merchants only. However, Amazon reveals that by the time of early 2023, the program will be available for all sellers on the portal.
What is Parafin?
Parafin is a leading fintech company with its headquarters in San Francisco. The company was introduced in 2020 by engineers and data scientists who were previous employees of another company named Robinhood. Parafin was born out of the desire of the founders to help small-scale businesses that were left behind in the overall success during the global pandemic.
With respect to funding, Parafin was successful in raising as much as $34 million in the form of series A and seed financing in September 2021. The funding program was led by Ribbit Capital and Thrive capital. In August 2022, the company was successful in raising around $60 million with the help of Series B funding. Therefore, the total equity of the company is around $94 million.
As per the official website of the company, Parafin is committed to helping in the retention of sellers while gaining access to ample revenues by taking some share of the capital advances. This makes it a reliable partner of Amazon -the third-party sellers of the platform are raking in over half of the overall retail revenue.
What is the Cost of Using the Amazon Merchant Cash Advance Program?
Merchant cash advances are known to work differently in comparison to other types of small-scale business funding. When you receive access to a lump sum payment, the MCA does not serve to be a conventional type of loan. Rather, you will be selling a percentage of the future sales in exchange for an upfront payment. At the same time, repayments are carried out by taking some percentage of the weekly or daily debit or credit sales. A fixed payment might be received weekly or even daily from the business-centric bank account.
Amazon Merchant Cash Advance Programs do not feature a conventional interest rate -like some other MCAs or merchant cash advances. This type of funding features a fixed capital fee that will be repaid -in addition to the funds that are borrowed -over a span of time. The fee is calculated with the help of a parameter referred to as the factor rate. Amazon does not disclose the rates publicly. Still, most MCA providers tend to feature factor rates between 1.09 and 1.6 -or even 9 percent to 60 percent of the borrowing amount.
While MCAs will not feature credit score requirements, these are still easy and quick to obtain. Moreover, MCAs will be available to new businesses. Therefore, it is important to understand that it can be quite an expensive form of financing. Moreover, weekly or daily payments can be quite disruptive for some businesses.
Before you take out the merchant cash advance from a provider like Amazon, it is recommended to effectively review the overall terms and costs before signing the agreement.
How to Apply for the Amazon Merchant Cash Advance Program?
The provision of Amazon Merchant Cash Advances -along with other types of financial products provided by Amazon Lending, are made available through an invitation only to qualified sellers on the platform. To observe whether or not you have received an invitation, you can log into the respective Seller Central account on Amazon.
In case you have received the invitation to apply for the Amazon Merchant Cash Advance Program, the option will be made available to apply on the homepage of the Seller Central account. From this point, you are able to choose the financial product you would like to receive along with the amount.
Eventually, you are expected to follow specific instructions to be filled out while submitting the applications. The time it will take to go through while providing the approval decision for the application will vary from one product to another. Additional documentation and information might be required to process the application across the entire application process. This will eventually add up time to the duration it will take to process, approve, and even fund the respective loan.
Should Your Business Consider Getting the Amazon MCA Program?
In case you face trouble in finding proper financing anywhere else due to challenges with respect to the credit score, the age of the business, or collateral requirements, the Amazon Merchant Cash Advance Program will be a great choice for your business. If you are an Amazon reseller thinking of opting for MCA and wish to adopt a quick and straightforward process, it will not get easier than applying right with the help of Seller Central.
However, if you are not a seller on Amazon, you can obtain access to a highly affordable financing option elsewhere. Moreover, if you are looking for effective repayment terms and better rates, you can go through the other funding options of Amazon or even check out other lenders.
The concept of Amazon Lending has brought forth a number of lending opportunities. The Merchant Cash Advance Program by Amazon is just another form of financial resource for sellers on Amazon. The program delivers the promise of easy, transparent, and quick funding for eligible borrowers. It can turn out to be a robust funding option for sellers or merchants who are facing difficulties in coming across other funding options due to the absence of any collateral, poor credit scores, or other types of challenges. However, in addition to other types of merchant cash advances, ensure that you are fully aware of repayment terms and fees before you make any commitment.