How Amazon Became a Force in Small Business Lending


Amazon got into lending to small and medium-sized businesses more than a decade ago, a move that reshaped the financial services landscape.

The e-commerce giant’s approach – heavily reliant on analytics and low- or no-interest loans – encourages participating vendors to increase sales, while Amazon increases its monthly percentage derived from merchant sales.

While the nation’s largest financial services firms aren’t too worried about losing revenue or market share, they continue to monitor Amazon and, in some cases, form partnerships with the company.

Why lend to SMEs?

United States SME market presents a “huge opportunity” for incumbent and alternative lenders, said Anisha Kothapa, intelligence analyst at consultancy CB Insights. Despite the pandemic and a 50% decrease year over year in SME loan approval rates in 2020, the number of SMEs actually jumped to 31.7 million over the past three years – a 7% increase, according to the US Small Business Administration (SBA). The SBA also indicates Loans to SMEs reached $750 billion in 2020but most of those loans are still made by traditional lenders like banks or credit unions, Kothapa said.

Amazon’s credit and lending game is more limited, by design. At the heart of the company’s small business lending services is Amazon Lending, which offers loans to Amazon merchants ranging from $1,000 to $750,000; interest rates between 6% and 16% (although some big sellers report lower percentages); and no closing costs.

Amazon automatically takes a fixed percentage of gross sales from the seller’s Amazon account each month for repayment of the loan. Payback periods range from three to 12 months, and funds can only be used for inventory management, product line expansion or product promotion, Kothapa said. Acquisitions, repayment of other debts, or expenses that do not directly contribute to revenue generation are not on the table.

Anisha Kothapa

While Amazon offers these loans by invitation only, some qualifying criteria have emerged, according to Fundera, a marketplace for financing SMEs:

  • Amazon sales history of at least 12 months;
  • total sales of at least $10,000 in the last 12 months;
  • good customer satisfaction indicators; and
  • no serious customer complaints in the last six months.

Amazon also offers its merchants two different line of credit options: renewable and full payment. Both cap at $100,000; the revolving line of credit (intended for SMEs) has an interest rate of 12.99%; full payment (for large companies) has no fees or interest if paid within 55 days. Unlike the invite-only Amazon lending option, lines of credit simply require the borrower to apply online.

The Amazon Advantage

Unlike traditional lenders, Amazon does not subject potential borrowers to an arduous qualification process. After all, the company already has plenty of data on a candidate’s sales (volumes, history), popular products, and overall business health. And since it costs banks as much time and money to process a $50,000 loan as it does a $1 million loan, they tend to view SMEs as less profitable.

SMEs also generally have fewer assets to secure a loan, making them less attractive to banks. “These challenges make small business lending an attractive market for Amazon to disrupt,” noted CB Insights in his research.

Amazon also has additional data on a potential borrower’s relative popularity within its industry vertical and its customer service standards based on reviews from Amazon users – information that banks lack. “With all this information, Amazon might be able to make more informed lending decisions than the average commercial bank – and, because the approval system would be data-driven, would likely process them faster,” CB Insights added. .

Why now?

Small business lending is mature enough to be disrupted – there are thousands of lenders, millions of borrowers, lots of bricks and mortar and lots of dissatisfaction.

robin gasterAuthor

Given his voracious appetite for diversification and disruption, why has Amazon not attempted a full-fledged game in the financial services sector? The e-commerce giant is a declared enemy of regulation, and few industries are as regulated as banking, according to Robin Gaster, whose book, Behemoth, Amazon Rising: power and seduction in the age of Amazondeconstructs business strategies and methods.

“SME lending is mature enough to be disrupted – there are thousands of lenders, millions of borrowers, lots of bricks and mortar and lots of dissatisfaction,” he said in an interview. telephone. “Anything regulated at the state level is hard to scale, so I imagine they will stay away from highly regulated areas.”

Of the society distaste for state and federal regulations is not the only thing that prevents him from opening the Amazon Bank. “They don’t have any expertise in the underwriting aspect of loans, and it hasn’t been a great experience for Amazon customers or their bottom line either,” said Forrester analyst Alyson Clarke. Underwriting, by which a lender or lender’s agent verifies a borrower’s income, earnings, and other financial information, also includes a risk assessment.

Covering all the bases

In June 2020, Amazon in partnership with Goldman Sachs to offer Goldman’s Marcus service to Amazon’s SMBs (the two worked together when Amazon acquired Whole Foods). The program is an exponential increase from Amazon’s other loan offerings; its merchants can obtain lines of credit of up to $1 million, with interest rates ranging from 6.99% to 20.99%. This is also the first time that Amazon has used third-party resources for lending.

Amazon may have recognized that it needs help qualifying borrowers for this higher risk threshold; the deal also helps Goldman better understand lending in the SME market, which hasn’t exactly been the brokerage’s bread and butter. “Goldman has deep pockets for underwriting capital needs, which puts them in good stead,” Clarke added.

Amazon has also entered into partnerships with other financial services companies over the past few years. It works with American Express, offering corporate credit cards to build its Amazon Business suite and attract new merchants. The cards are intended to give companies more control over employee spending, and also include analytics tools and Amazon Web Services (AWS) discounts.

The e-commerce giant is also work with Worldpay, an international payments clearing house, which has integrated Amazon Pay into the Worldpay platform. This relationship saves merchants from having to integrate Amazon Pay with their websites and payment options. Other agreements with Bank of America and JPMorgan Chase would also be under construction. There are also regular speculations on Amazon offering checking accounts to its traders, but the company remains coy about this prospect.

Amazon, still the big disruptor, is certainly revamping the landscape of the SME lending market. But it’s also true that the financial services industry has disrupted Amazon to some extent and changed the way the e-commerce company operates, not to mention how it continues to grow its own bottom line. Like any smart company, Amazon will dance with a variety of partners for as long as it makes sense.


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