Amazon lending has made over $1 billion in small/medium business loans to sellers on its marketplace over the past year. The program was created to ease access to business loan for small businesses. The right amount of capital at the right moment can place a small business on the course to greater success. This foresight by Amazon is to help expand inventories and operations of small businesses at critical period of their development.
Information from one of the sellers says, as of recent, he has been given a great variety of options when it comes to the capacity of the loan he has access to. Previously he was confined within a credit limitation and 6 months duration to refund the acquired loan. His recent activities online, revealed he has many more flexible options on what he could borrow and also extended repayment periods too. As we understand it, interest rates too can vary depending on borrower.
Who can use this service?
It solely depends on the terms of the loan, this service is ideal for capital investment in growing and expanding your business capacity as a seller. Moreover, this service can also be fundamental for the business to get on well-priced credit within short notice. Taking advantage of arising opportunities, a loan can bridge the gap between buying stock and selling stock.
How Amazon lending works
This works solely on an invitation-only basis, short term business loans are offered to small and medium sized businesses that sell products on Amazon platform and also third party sellers. The loans range from $1,000 – $750,000, with interest rate of 6% – 17%.
Loans are approved for merchants within a day. Unlike conventional lenders that usually have long loan applications that require all forms of paperwork, Amazon uses internal generated algorithms to invite sellers for loan based on popularity of their products, inventory cycles and some other factors.
The obtained loans are repayable in a frame of a year, where borrowers use sales generated on the market platform to service the loan, Amazon has fixed monthly payments which are removed from the borrower’s Amazon account.
How Amazon benefits from the program
This program provides several benefits to Amazon:
- Amazon gets interests income from the loans given to merchants.
- The third party sellers through this program tend to sell more products, which simultaneously add up to more commission for Amazon.
- When merchants acquire the loan, it directly interprets to more inventory and sales operation which means more generated revenue for Amazon from providing storage, packing and delivery services.
- Through the developed algorithm by Amazon, real time data on seller businesses and customer reviews are known. This greatly lessens credit risk.
However, it is known that other services in the market offer similar program, notably Iwoca and PayPal. But in many ways Amazon’s lending is the most interesting because it brings together merchants even more closely into the Amazon ecosystem.