Amazon.com Inc. will be expanding its small seller loan program later this year. Their short-term capital loan program has thus far only been offered in the United States and Japan. The Amazon Lending program will be rolling out in China and seven other countries in late 2015.
Funding for small businesses in China has been tight. Small businesses have a high failure rate and Chinese banks have been cautiously avoiding the risk. Amazon Lending may enable their small Chinese sellers to have the capital needed for growth.
Paypal and Alibaba are already operating lending programs in China, giving their merchants an added advantage in the marketplace. Alibaba is currently the top online marketplace in China while Amazon still has a relatively small market share. Making short-term loans for its vendors may help Amazon make more of a splash in the Chinese e-commerce marketplace.
Amazon Lending currently offers loans by invitation-only to small sellers on the Amazon third-party marketplace in the United States and Japan. The lending program was started in 2012 and has offered hundreds of millions of dollars in loans to small sellers. The loans will continue to be invitation-only and not available to all merchants.
Amazon lending offers loan amounts ranging from $1000 to $600,000. Short 3 to 6 month terms are intended to provide sellers with capital to purchase additional inventory for immediate sales and growth. Interest rates are currently reported to range from 6 to 14 percent in the US and Japanese marketplaces. These interest rates are consistent with rates currently charged by business credit cards and banks.
Large lenders see Amazon’s foray into small business loans as risky. Amazon, however, reports that their risk is diminished because they are able to utilize information from their internal data when inviting sellers to receive loan offers. Amazon’s data can show them the popularity of a merchant’s chosen products, inventory cycles, and how often they run out of stock, as well as the basics like sales volume and customer feedback. They also reduce the default risk by automatically deducting loan payments before disbursement of the payouts due to merchants for their product sales.
Amazon’s loan program creates yet another source of revenue for Amazon, while also filling a need that’s particularly acute in the Chinese market place.