Amazon.com said Thursday that its Amazon Lending service has surpassed $3 billion in loans to small businesses since it was launched in 2011. Amazon is planning to expand its lending to small businesses in the US, the UK and Japan, in a direct challenge to the big banks which have historically dominated.
In the last 12 months alone the e-commerce giant has loaned over $1 billion to small businesses. Hiking up the sales for third party merchants is a plus for Amazon, as the company gets a piece of the transaction.
“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,” Amazon Marketplace VP Peeyush Nahar said.
Over 20,000 small businesses have received a loan from Amazon and more than 50% of the businesses Amazon loans to end up taking a second loan. Amazon supplies funds from its own balance sheet within 24 hours, then deducts loan payments every two weeks automatically from the seller’s account. If the account runs dry, or if sales suddenly dip, Amazon can put a freeze on any merchandise held in its warehouses until the seller pays up.
The move is also a sign of a broad shift of power away from the big bricks-and-mortar banks — which have pulled back from small-business lending under tougher post-crisis rules on capital — and from newer online challengers such as OnDeck and Kabbage, which have spent heavily on lead-generation and marketing to unearth creditworthy borrowers.
Peeyush Nahar noted that most sellers used their loan proceeds to buy more stock and negotiate bulk discounts with suppliers. Losses so far had been “very, very small”, he said, without offering details.
He added that Amazon could offer more bank-like services in future. “We started when we heard that capital was a big constraint for sellers. We’ll have to see what else is constraining them,” he said.