The Amazon Seller’s Debt Trap…

How to get out of the Amazon Seller’s Debt Trap

As you kill it in your Amazon business, are you carrying a mountain of debt that only gets heavier as you grow, with higher and higher monthly payments every time you refinance? If you answered yes, you’re not alone. I’m here to help.

Beware the seller’s debt trap

In order to grow their Amazon businesses, most sellers take on debt, and usually more debt than they actually need, use part of it for inventory, and a big chunk of it to “keep the lights on”. If you’ve ever taken out a loan for an inventory-based business, and are still making monthly payments on that loan months after the inventory is sold off, you’ve fallen in a little trap that I like to call the Amazon Seller’s debt trap.

One thing that allows you to pay off debt and live the good life is choosing the right products to sell. If you have high velocity or high profit margin products you can confidently use other people’s money without over-leveraging. The trouble is, most sellers don’t have this luxury. So they take a lot more time to pay off debt, and when they need more money, they refinance and take on more debt, further increasing their chances of bankruptcy. Eventually they end up in a mountain of debt so massive that it becomes almost impossible to get out of it.

The little-known secret

 Here’s a little secret to say out of the seller’s debt trap: borrow only for inventory, and then pay off that debt as inventory sells. It keeps you out of debt. Seriously. That’s the entire secret.

But don’t take our word for it. Michael and Brett’s stories below perfectly illustrate the power of paying off inventory as it sells.

Rich Seller, Poor Seller

Michael and Brett are very good friends. Brett heard about the Amazon FBA program, and got Michael in on it. They decide to do it together, but separately. They would advise each other, and keep each other motivated. After a lot of searching, sourcing and testing, they each find their perfect product.

Round 1, Month 1: Both need $20K worth of inventory. 

Michael

$20k

Bret

$20k

Michael’s loan requires him to pay starting in month 1, so he must take on additional funds (more than $3K) in order to handle those payments, until his inventory arrives and begins selling. Brett’s loan allows him breathing room until his inventory arrives and begins selling. He doesn’t have to make any payments until 2 months later.

 

Round 1 Score Card Round 1 Score Card
1st round inventory   . . . . . . . . .  $20,000 1st round inventory   . . . . . . . . .  $20,000
Additional funds + Loan Fees . . .  $3,528 Loan Fees   . . . . . .. . . . . . . . . . .  $1,000
Round 1 total  . . . . . . . . . . . . .   $23,528 Round 1 total  . . . . . . . . . . . . .   $21,000


Round 2, Month 6. Again, Both need another $20K worth of inventory.

Michael

$20k

Bret

$20k

Michael’s loan term is 12 months, he’s not yet done paying it off. So he refinances, taking on another $21k in loans. At month 5, Brett has already paid off all of his debt, since he was paying them off as he sold inventory. Now he can just pick up another loan for another round of inventory.

 

Round 2 Score Card Round 2 Score Card
1 round debt   . . . . . . . . . . . . . .  $23,528 1 round debt   . . . . . . . . . . . . . .  $0
2nd round inventory   . . . . . . . .   $21,000 2nd round inventory   . . . . . . . .   $21,000
Round 2 total   . . . . . . . . . . . . .   $68,693 Round 2 total   . . . . . . . . . . . . .   $68,693


Round 3, Month 12. Again, Both need another $20K worth of inventory.

Michael

$20K 

Bret

$20K

Michael continues to refinance because he has no other choice. Bret is starting from zero debt again

 

Round 3 Score Card Round 3 Score Card
2nd round debt   . . . . . . . . . . . .  $41,174 2nd round debt   . . . . . . . . . . . .  $0
3rd round inventory   . . . . . . . .   $21,000 3rd round inventory   . . . . . . . .   $21,000
Round 3 total  . . . . . . . . . . . . .   $68,963 Round 3 total  . . . . . . . . . . . . .   $21,000

Extrapolate

Michael and Brett continue this trend for 2 years. Here’s a tally of how much debt each has at 6 month intervals

Micheal (Other Borrower) Brett (UpFund Borrower)
1 month    . . . . . . . . . . . . . . . . .    $23,528 1 month    . . . . . . . . . . . . . . . . .    $21,000
6 month    . . . . . . . . . . . . . . . . .    $41,174 6 month    . . . . . . . . . . . . . . . . .    $21,000
12 month    . . . . . . . . . . . . . . . .    $68,623 12 month    . . . . . . . . . . . . . . . .    $21,000
18 month    . . . . . . . . . . . . . . . .    $114,371 18 month    . . . . . . . . . . . . . . . .    $21,000
24 month    . . . . . . . . . . . . . . . .    $190,619 24 month    . . . . . . . . . . . . . . . .    $21,000

Conclusion.

Here’s what made all the difference: Brett used a lending service that enables the neat little trick we described above. He takes only what he needs, and returns the money as soon as inventory is sold, then takes on more money for another round of inventory. In this way he can scale his business infinitely. This system doesn’t work very well for, say, a real estate business, with massive capital outlay at front end and lots of time before that capital bears fruit. But it works great with ecommerce businesses, where you have bursts of inventory purchases followed by sales of said inventory.

There’s only one lending service that allows you to do what Brett did. It’s call Upfund.io.

Michael on the other hand, uses a conventional loan lending service.

What you can do now

Head over to Upfund.io if you need funding for inventory. There’s simply no better way to grow your business with Other People’s Money.

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