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If you’re starting any new business, you will need some capital to get it off the ground, or at least to get it scaled.
If you’re starting a Fulfillment by Amazon (FBA) business, then things become a bit more complicated. Some of the avenues that other businesses have access to, such as loans from traditional lenders like banks, become more difficult to come by, especially in the early stages.
Clearly, however, you are not the only one in this position and there have been many that came before you that managed to get funding quick enough to allow them to grow.
Whatever road you take, never forget that an FBA business is a business like any other and you need to take it seriously - do your research, weigh the alternatives, and don’t go flying in recklessly. Get the balance right and you can turn it into a profitable company.
While there are ways to raise equity funding, chances are the majority of what you will come across, especially early on, will be some form of debt financing. These may include:
The first and simplest one - you use your own money. Starting a business is tough and it is not cheap, you should not be doing it if you’re not prepared to put skin in the game. That said, it doesn’t mean you should go bankrupt either, or you should dig too deep into essential pockets of money such as funds you are saving for specific purposes like your children’s education.
You can try borrowing from family and friends, as many entrepreneurs do, just be mindful that just because you know them doesn’t mean that this is free money - treat it seriously, and pay it back in a timely manner, make sure everyone is aware of the risks, and have proper contracts in place to protect everyone involved, lest you find out why many people advise against mixing business and personal.
If done right, it can be great! You will have a base on which to build your business without taking on too much external debt or giving up too much of your company.
Obviously only a short-term solution, but may give enough of a boost to get you going while you secure other financing. Do not over-rely on credit cards.
This is a good option to get started out, especially since business loans will be hard to come by if you don’t yet have a track record and are just looking to borrow five-digit sums.
Personal loans carry the benefit of not usually needing to be secured, tend to have a comfortable payback period of between 2-7 years, and are made available very quickly.
Another advantage is that you can get attractive interest rates if your credit score is good enough (but can be high if it is not), and it is listed to your name rather than your business. It is not a good idea, however, to take out a personal loan if you already have pre-existing debt
If, by chance, you are eligible and get approved for a business loan, then they are certainly a huge help, though likely come with a higher interest rate than personal loans. You can use it for general working capital or for shorter-term bridge finance while you obtain other sources.
If your business qualifies, Amazon offers an invitation-only loan service for FBA businesses that allows you to borrow anywhere between $1,000 and $750,000. Terms tend to be for 12 months, with interest rates varying between 5-15%.
Amazon will also take a fixed percentage of your gross sales, which it will deduct directly from your account. It has the advantage of being purpose-built for a business like yours, benefits from lower fees, and is dedicated to growing the size of your inventory.
This is one we’ve seen more and more of in recent years. Just about any startup can be crowdfunded, and the same is true for FBA businesses - websites like Kickstarter and Indiegogo provide good platforms to do this. Obviously, this will rely on the willingness of strangers to give money to a business they know nothing about, made perhaps even more difficult if you are one of many sellers on Amazon, but they will be more likely to do it if they can see something tangible they get in return.
While many crowdfunding models will give investors debt instruments that will earn them returns as they pay them back, they can also be equity or even donation-based. What many startups do - and it could make sense if what you do is sell products anyway - is offer them a free item if they donate the minimum amount.
What if you don’t want to take on debt - or you think you’ve already borrowed too much but still need capital to move to the next level? Then you can take on an equity funding approach, which won’t put more debt on your balance sheet, but does mean that you give away bits of your company in return for the capital.
Most of the time, this will involve finding and teaming up with a business partner - someone who can come in and provide some capital to help the business move along.
It is crucial to remember that money is not the only consideration here. A business partner is not just a piggy bank, but someone who will own part of your business. This means you need to make sure they are trustworthy, hardworking, reliable, and cares as much about the success of the company as you do. A business partner’s involvement should decrease your business risk, not increase it.
Before you go out and get any type of financing - equity or debt - make sure that your business fundamentals are sound. Make sure you have a product that works and a market that would buy them. This is money that you will have to pay back, so don’t put yourself in a position where you can’t.
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