Amazon is teaming up with Bank of America to expand its small business lending program. Jeff Bezos, Amazon CEO, said in a shareholder letter two years ago that the company was looking to partner with major banks to expand its lending program to businesses that sell on the Amazon marketplace.
The ecommerce giant launched Amazon Lending in 2011. Sources familiar with the matter say Amazon has teamed up with Bank of America to reduce risk and access to capital to provide credit to merchants to expand their inventory.
Amazon Lending, which is an invitation-only program, distributes loans of $1,000-$750,000 with terms of up to one year. The loans are dispersed to merchants who have difficulty obtaining conventional business loans.
The program is growing, but Amazon is tapping the breaks to slow growth until it better understands the credit risks associated with a large-scale lending program. In June 2017, the program had issued over $1 billion in loans during the previous 12-month period. That’s much higher than the $1.5 billion in combined loans for the four-year period prior to 2017.
Amazon does not promote its business loans program, as it is only available to the top sellers on the marketplace. The online retailer is not looking to make money off interest payments on loans, but rather, wants to help merchants obtain more inventory to sell more goods on Amazon’s marketplace. The loans ultimately help boost Amazon’s sales growth and their bottom line.
In its 2016 annual report, Amazon said it received a $500 million revolving credit facility from a “lender,” who sources say is Bank of America. In its most recent annual report, Amazon said the facility was increased to $600 million and may increase from “time to time” and is “subject to lender approval.”
“We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success,” said Peeyush Nahar, vice president for Amazon Marketplace. “Small businesses are in our DNA. Amazon is providing capital to small businesses to help them expand inventory and operations at a critical period of their growth. We understand that a small loan can go a long way.”
Sources familiar with the Amazon Lending program say the company’s loans aren’t the best option for mature businesses. Companies like Kabbage, PayPal and Square offer loans with better terms and rates. Loans dispersed through Amazon Lending, sources say, have annual rates that range between 6% and 14%.
Last year, Amazon indicated that it might expand its lending program to other countries where its marketplace operates. Potential countries include India, Canada, China and France.
Amazon does have some advantages in the risk department. They have near real-time data on merchant sales and access to merchant customer reviews. The wealth of merchant data available allows the company to minimize credit risk and make smarter decisions deciding whether to disperse a loan.