How will Amazon’s £3bn investment impact small business lending?

 In Small Businesses & Startups

Amazon is revolutionising small business lending.

The Internet giant has already invested £3bn in its own small-scale marketplace traders. It is thought to be considering extending its small business loans to customers who do not trade on Amazon. If this happens, it will introduce an interesting new competitor to the banks and peer-to-peer platforms that currently loan money to small businesses.

What is Amazon offering?

The global marketplace launched ‘Amazon Lending’ six years ago to help grow small and micro firms selling on their platform.

This service is not commonly known about. However, it has given loans to over 20,000 small companies within the UK, US and Japan since its launch.

£1bn of the total £3bn that has been loaned to Amazon’s traders since 2011 was advanced in the last 12 months. This suggests a huge upturn in demand.

Commenting on the rise of the platform’s short-term business loans, Amazon Marketplace vice president, Peeyush Nahar, said:

“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.”

About the loans:

Here are the key things you need to know about Amazon’s loans:

  • At present, they are only available to Amazon marketplace traders and by invitation only.
  • Instant loans range from $1,000 to $750,0000.
  • Short-term loans up to 12 months.
  • Annual interest ranges from six percent to 17 percent.
  • Once loans are issued, loan payments are deducted every two weeks.
  • If the seller cannot make repayment, Amazon can freeze the sale of an item until it recieves payment.

What does this mean for small business lending?

Amazon Lending challenges traditional small business lending as we know it.

By focusing on Amazon-only businesses, the company is able to monitor business performance and customer feedback. This severely reduces credit risk, and enables sellers to receive loans at lower (and more competitive) rates.

In efforts to compete with the global marketplace, banks, peer-to-peer lenders and other financial institutions may have to adapt their operational structures, e.g. moving in-branch processes online.

Regulatory measures may also decrease as Amazon does not have the same restrictions as banks.

This will all result in it becoming much easier for small businesses to procure loans from all lenders, not just Amazon.

This is great news for small businesses, especially given that small business bank loan funding has decreased in the last few years. Amazon offers a viable alternative – or it will once it expands its reach to the wider market – and will spur other institutions to offer more competitive rates.

This investment is set to change small business lending for the better, making it more accessible for businesses across the globe and helping them to succeed.

However, to get a loan at a fair and favourable rate, your small businesses finances must be in order. Use online accounting software like Xero to keep your cash flow under control. Then you can start exploring which funding options are best for your business.

Stay ahead of the game when it comes to your small business finances by calling on the experts at 3 Wise Bears.

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