Online products and fast delivery are phrases that are closely associated with Amazon. But now, individuals might soon start thinking about the e-commerce giant when applying for business loans.
Amazon Lending, the company’s financing service, is expanding to the following countries this year: Canada, France, Germany, India, Italy, Spain, China and the UK. Previously, the funding option was only available in the US and Japan.
“We know a lot about our sellers’ business and invite only those who we think are in the best position to take capital and grow,” highlighted Peter Faricy, head of Amazon Marketplace.
Compared to other small business lending establishments, Amazon is fairly new to the space. It started the financing service in 2012 and has participated in numerous loaning agreements amounting to hundreds of millions of dollars.
Can I Get a Loan from Amazon?
Amazon does not cater to personal loans at this time. The service is only available for small sellers residing in the countries listed above. Furthermore, the entire process is strictly regulated by invites.
This means sellers must meet a set of qualifications before being allowed to apply for a business loan. Once a seller fulfills the prerequisites, a notification is triggered in the system and the option is offered to the individual.
Sellers who qualify for the program can benefit from flexible lending terms. Amazon provides three to six-month options, ranging from $1,000 to $600,000 with interest. Most individuals use the loans to boost inventory.
PayPal offers similar services for eBay merchants using the payments platform to manage their online transactions. Sellers must have a strong selling history on PayPal to qualify. The company currently distributes around $2 million worth of loans daily.
Why Small Sellers?
Many small sellers are prone to unforeseen business risks due to lack of capital and data, which often results in failure. According to PayNet, a leading credit ratings provider, small business default rates (with credit under $1 million) have increased in 2015.
The data services establishment confirmed that majority of sellers today are unable to assess risk properly.
Amazon hopes to curb this trend by safely offering loans based on personal profiles and financial algorithms. To ensure consistent payments, the company takes a cut from the sales proceeds it pays sellers.
Amazon Takes on China
China is where businesses want to be. The densely populated region offers exponential growth opportunities that cannot be found anywhere else in the world. Unfortunately, it is a very difficult market to enter. Local Chinese brands, such as Alibaba and Tencent, currently dominate the area, with products ranging from financing, e-commerce, hotels and telecommunication services.
Amazon’s strategic approach to expand in China is conservative. By making slow advancements over a spread of niches, including small business loans, the company can gain long-term momentum with minimal risks.
“Amazon has very little share in China and they haven’t been able to break out of that, so this is a very important necessary step for them to be able to grow,” said Gil Luria, analyst with Wedbush Securities in Los Angeles.