Raising Debt Financing for Your Amazon Business

Fernando Cruz comes back to talk on raising debt financing.

Benefits of Raising Debt Finance

  • Debt finance is like getting a loan through the business
  • An alternative is taking on equity and giving a piece of the company to investors
  • Consumer products business benefit from debt in the early days to help grow the business
  • Means you can still go for equity investment later but you can strike a better deal because your debt finance will have bank rolled you growing the business to get a bigger deal

Raising Debt Financing – the Process

  • They have raised upto $1m in debt finance
  • Done in stages and now upto $1.3m but paid most back
  • A bank in the beginning will not fund you
  • Had a little bit of funds themselves
  • Started out with family and friends
  • Raised two notes each for $30k in the beginning which tripled their pot
  • They hit a home-run product and took off
  • Then they met a high-note investor who was a friend and he loaned them teh money at great terms
  • Giving up equity in the long term would have been way more expensive
  • Were paying interest only at 12% with a 2yr and an option to extend for a 3rd year
  • This gave the cashflow to grow to $7m
  • Then took on SBA loans in the US that are loans over 10yr loans
  • Much better than Amazon’s one year loan that is pretty brutal

What is a Note

  • It’s a simple agreement for a Loan
  • Write it any way you want but for Fernando it was a two year baloon payment
  • Didn’t pay the principal but paid 12% or $12k per year ($1k per month)
  • Then at the end of the two years they paid back the principal (the $100k)
  • An Amazon Seller can do so much with $100k – gives you two years to grow your cashflow to pay it back
  • Also had the option to pay 2% up front to extend for a 3rd year
  • A note is an agreed upon amount that will be borrowed and paid back over a period of time
  • The interest rate depends on your relationship with the investor or your cashflow in the business

Isn’t 12% a High Rate?

  • Interest only was best for Fernando
  • Cost of capital was the 12%
  • Average ROI on the product being sold was over 100%
  • So if you can flip inventory n number of times with 100% ROI
  • If you’re managing your inventory and product selection right then the 12% is really cheap

Costs you more in equity later

  • I’m paying 12% cost of capital
  • Over 2 yrs I’m paying $24k for that loan
  • Were growing 300% per year
  • If hte company was worth $200k in the beginning
  • Grow 3x in 1st year is valued now at $600k
  • Grow another % and upto $800k in value
  • To get that $100k when originally valued at $200k
  • Giving up 10% of the original $200k you’re paying $20k
  • But now giving 10% of the $800k is $80k and if you grow the company for 5 years to $10m – that’s cost you $1m instead of a very confined interest % in raising debt financing


  • Banks say – if you can’t sell this inventory what are they going to do with $1m in inventory
  • This comes up with bank investment
  • Taking out ‘personal guarantees’ can swing it but scary
  • It’s risky investment

Best Way to Raise Funds

  • What to ask for and who to approach
  • Introductions are really helpful, relationships are key
  • Hard to email somebody cold
  • Lots of intros when running the company
  • Knew everyone that took at 12% before they started the company
  • Investor groups like Angel investors you can present to
  • It’s basically a lot of networking
  • Lots of refining the pitch and business model
  • Was pretty much a full time job to go and raise this much money


  • Aiming for $2m EBITDA this year
  • To grow to this size means being able to take on a $3m line with less risk

Safe or Convertible Note

  • Debt offering in the beginning but option to get equity in a later round
  • Is Founder friendly – templated with easy fees
  • No agreed evaluation but an agreed debt level


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