A merchant cash advance is a new financing option that Amazon has introduced for small business sellers. The advance is given by Parafin, an American company that offers expansion financing to sellers. Parafin is a San Francisco-based fintech company founded in 2020 by data scientists and engineers who were among Robinhood’s first employees. The company was born out of the founders’ desire to help small businesses left behind during the pandemic.
Without fixed periods, credit checks, late penalties, or cumbersome paperwork, sellers have access to between $500 million and $10 million to grow their business, protect profits, create new items, increase inventory, and efficiently manage product flow. Treasury. Until the loan is repaid, Amazon will provide its sellers with cash loans with flexible payment terms based on a fixed percentage of their total merchandise sales.
So how do Amazon and Parafin generate revenue? Sellers must pay a pre-determined capital charge when borrowing money under the program. Unfortunately, the announcement omits the amount. They are not required to make minimum payments, pay interest or provide security for the loan. A flexible payment schedule is determined by a fixed percentage of the seller’s Gross Merchandise Sales (GMS) until the financing is paid off. Payments are only required during periods when a seller has made sales, and the fixed payment rate ultimately protects them during periods of slow or no sales. Sellers who have been selling on Amazon.com for at least three months will have access to this funding option.
According to the release, Amazon will begin offering the funding option to a small group of US businesses on Tuesday and roll it out to “hundreds of thousands of merchants by early 2023.” The merchant cash advance application process is not too difficult. You must first log in to the Seller Central hub before you can explore the financing options available for your business. You will see the option card on your Seller Central homepage if your business is eligible for a merchant cash advance. Select it and decide which financing choice is ideal for your business, including choosing the amount you want to request. The final steps to complete the application will then appear on the screen.
Director and General Manager of Amazon WW B2B Payments and Lending, Tai Koottatep, said via a statement on the About Amazon press page, “Amazon is committed to providing convenient and flexible access to capital for our sellers, regardless of size. Today’s launch is another step in strengthening Amazon’s commitment to sellers and building on the strong portfolio of financial solutions we already offer. This latest offering dramatically expands sellers’ reach and capabilities and broadens their access to capital in a flexible way, helping them control their cash flow and, by extension, their entire business. »
The co-founder of Paraffin, Vineet Goel, explained why his company provides the advances, saying, “We founded Parafin with a mission to grow small businesses, and we’re thrilled to have the opportunity to do so by offering Amazon sellers this option. cash advance for merchants. . It’s a privilege to count us among Amazon’s suite of financial solutions, and we look forward to making a difference for Amazon.com sellers looking to grow their business.
Along with the cash advance program, Amazon has become even more involved in the financial affairs of its suppliers. The company launched a digital wallet service in July that allows retailers to store and transfer funds from the wallet to their bank accounts. The service was free, with the exception of currency conversion and foreign transfer fees. Amazon pursues projects outside of the retail sector as it may not be profitable. The company began providing free access to its shipping technologies to merchants in September to speed up their fulfillment processes and reduce delivery costs. Amazon continues to offer financial options, such as term and interest-only loans through Amazon Lending, to its third-party sellers. Additionally, he has worked with Marcus by Goldman Sachs to provide sellers with trade lines of credit.
“It can be difficult for small and medium-sized businesses to access capital, whether they’re just getting started or are more established,” said Laurie McCabe, partner at SME Band. “What Amazon does in partnership with Parafin to provide quick access to capital in a convenient and transparent way – and which protects sellers during periods of low or no sales – is important for the industry. It will be exciting to see how Amazon sellers use this cash advance solution to help grow their businesses. »
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