Amazon moves into short-term loans for small business

Forget retail or cloud computing, web giant Amazon is moving into small business finance with the establishment of a new department that provides short-term loans to SMEs.

It’s yet another expansion of the company’s already growing repertoire, which provides retail services, website hosting, publishing and media content – along with its hardware division.

As The Wall Street Journal reports, Amazon is using its new Amazon Capital Services department to provide short-term loans worth tens of thousands of dollars to SMEs across the country.

Amazon said the goal of the program is to make it easier for SMEs to access funding, and make sure they get the money faster than they would from a traditional bank. But there’s a clear financial goal here, as it guarantees a return by lending to its own retail partners which sell through the web giant’s retail arm.

While it hasn’t said how big the program is, it did say the program is in an “early” stage of its lifespan. It also said the purpose is to “serve sellers of all sizes”.

Interest rates range from as low as 1% to 13%, which is lower than businesses can access for credit card rates.

In a positive sign for Australian businesses, Amazon said it would be open to expanding the program to sellers based outside the United States.

Telsyte research director Foad Fadaghi says while the move may seem unusual, it’s not unprecedented.

“You see brands that have moved into this space before, but haven’t necessarily done so in the past. GE Capital, for instance, or brands like Virgin Money.”

Fadaghi says it makes sense for Amazon to move into this area and lend to the retailers it’s already been working with over the past decade and a half.

“The benefits here are twofold, in that Amazon makes money, but it also informs a way for the company to diversify its income.”

“It also implies that the company feels its brand is strong enough to move into that space.”

Fadaghi points out that Amazon has a strong relationship with several merchants, which gives it an upper hand in providing attractive finance options. And given the company’s size, it can fulfil the capital requirements.

“It’s not an off-the-wall concept, really.”

“Amazon is the biggest online retailer bar none, really, and that in itself lets it remain in good stead to provide finance.”