Amazon US have begun lending to some of the most reliable businesses that trade through their web services and this new form of finance is likely to hit UK Amazon Retailers once tests are complete.
Small businesses find it hard to secure loans from the bank because they have little or no credit history and/or lack appropriate assets to act a security. The difference with Amazon is that regular traders using the online platform would have passed enough information through Amazon, such as sales and transactions, to allow a judgement to assess how likely it is for a loan to be repaid…sort of like an Amazon specific credit rating.
Loans are currently ranging from $1,000 to $38,000 (£650 to £25,000 approximately). Traders are usually offered interest rates of around 13%. This rate is generally on the cheaper end of typically business credit card rates but Amazon have apparently offered a loan with as little as 1% interest rate.*
Amazon Business Loans seem a win-win for both Amazon and for businesses trading through their site. Traders receive credit to purchase new materials, which would have previously being difficult to afford whilst Amazon benefit too.
As Amazon take a cut off every sale by a business using their services of around 5-16%, increasing business sales through their site also increases their revenue. And let’s not forget about the interest on the loan going straight back to Amazon too!
It seems like a win-win as both parties increase their sales.
But as the saying goes, “is it too good to be true?”
As with every funding solution, Amazon Business Loans also have a darker side. Although this may not be a problem for every business, it is likely to impact the way current businesses compete with one another, even if a business does not take up an Amazon loan.
1) Being trapped with Amazon – Amazon loans are repaid through sales within the site. This means that the business cannot use the cash to invest in other sales channels such as eBay or their own websites.
2) Increased competition – Are eBay sellers likely to move over to Amazon to benefit from these loans? Probably, yes. It could mean further increased competition for online retailers through Amazon as more traders join the fight to be the cheapest and most reliable. This could be good for consumers but unlikely to be welcomed by traders.
Amazon US are offering online traders a financial life-line they would have found it difficult to secure before the introduction of Amazon Business Loans. With both the lender and borrower benefitting from each other, the competition and popularity amongst Amazon traders are only likely to intensify.
Until this reaches the UK though, businesses here are going to have to wait. To keep up with the latest developments in business funding news, join us on Twitter through @JustAccountants.
*Stats taken from Wall Street Journal Amazon Interview: Small Businesses Are Finding An Unlikely Banker: Amazon (Accessed 25/06/2013)
Excerpt: If you are a business trading through the likes of Amazon or eBay, you will be very interested to hear about the latest funding initiative being tested by Amazon US at the moment.