How Amazon Could Dominate Yet Another Industry: Small Business Lending

Georgia McIntyre

Georgia McIntyre

Manager, Content Marketing at Fundera
Georgia McIntyre is the manager of content marketing at Fundera. She has written extensively about small business finance, specializing in business lending, credit cards, and accounting solutions. Georgia has a B.A. in Economics from Colgate University.
Georgia McIntyre

If you’ve kept up with the latest on Amazon, then you know that they’re all over the news this month.

Not only did they recently acquire grocery mega-store Whole Foods for a whopping $13.7 billion, they’ve also made a formidable entrance into the small business financing space.

The company announced earlier this month that the Amazon Lending program has doled out more than $1 billion in loans in the last 12 months.

This is the finance world’s first public glimpse into how well the lending program is doing.

Are they poised to dominate the industry? What does this mean for small business lending in the future?

Here’s what you need to know.

Where Amazon Lending Stands Today

The company announced earlier this June that not only had they lent $1 billion to Amazon sellers in the last year, they’ve lent a total of $3 billion loans to more than 20,000 small businesses in the U.S., U.K., and Japan since the program launched in 2011.

And perhaps an even more impressive statistic—Amazon claimed that 50% of all the businesses they lent to ended up taking another loan with them.

Clearly, the Amazon Lending program is alive and well, and it’s one backed by a lot of sense and potential.

First, let’s cover the basics of the lending program, before diving deep into why we suspect the ecommerce giant’s dabble in fintech will be a lasting effort.

How Does Amazon Lending Work?

It’s important to note that Amazon Lending is first and foremost a service for Amazon sellers.

If you don’t sell your small business’s products on Amazon, then you really don’t have access to their capital.

But if you do sell on Amazon, then you know one thing for sure: Amazon knows everything about the performance of your business—at least as it pertains to your performance on the Amazon marketplace.

Put simply, the data Amazon needs to lend to an Amazon seller is already there. Amazon uses algorithms to identify those Amazon merchants with the best selling histories on their site.

If you’re one of those businesses, Amazon then extends an offer to you ranging from $1,000 to $750,000—payable anywhere within 12 months, depending on the loan amount.

For repayment, Amazon collects a monthly repayment through the sales that the small business makes on the Amazon marketplace.

Of course, like all business loans, Amazon loans come with interest. In the update announcement, Amazon didn’t disclose interest rates for its loans. But they did say Amazon loans come with interest rates lower than the ones you see with credit cards and similar loan products—like merchant cash advances.

Why Amazon Lending Is Well-Positioned for Ongoing Success

If the past few months have proved anything about the Amazon leadership, it’s that CEO Jeff Bezos is a risk taker.

Entering small business lending with such force is an aggressive and high-risk move—especially when the data used to underwrite these loans is really only sales performance on just one sales channel.

But in many ways, lending is an especially smart sector for Amazon—and sellers on Amazon (might) benefit from the service.

First off, Amazon has a massive customer base; it’s easy for them to work with 2 million potential lending customers. They’re already selling on Amazon’s marketplace—and money from sales go straight into their seller’s account.

These small businesses selling on Amazon need money to grow. Merchants can use the capital to buy more inventory or develop more products—to sell on Amazon. Not only does Amazon win by charging interest on the loans, they win by helping Amazon sellers grow.

Second, Amazon is well-positioned to continue making these loans due to the intimacy with which they know their lending customer’s data. Amazon knows exactly how much money their customers are making and when that money comes into their business. They know when it’s smart to lend to the business—or when a seller is about to default on payments.

While it could seem like Amazon Lending gives the ecommerce giant a tighter grip on the details and operation of your business, you’d benefit from their use of your seller data. They can make funding a business a smooth, fast, and easy process.

Amazon Lending and Its Future in Fintech

Amazon has forever changed a lot of industries—most obviously, the retail industry.

And there’s no reason to believe Amazon doesn’t have a future in fintech and the banking industry.

Amazon has a lot of cash to lend, and they’ve hit those lending numbers with only a short-term loan product. The mega-company could easily start offering products similar to what big banks offer—medium-term loans, lines of credit, and so on. If serving the many varying needs of their merchants is their end goal, then expanding their product offering is a surefire way to achieve that.

Plus, Amazon will have no problem staying relevant and prominent in the small business lending space. As Meredith Wood, vice president of content at Fundera, points out, there’s no online lender that has the brand recognition and authority that Amazon has.

Sure, OnDeck and Lending Club are certainly well-known lenders in the space, but most small business owners are unfamiliar with other online lenders offering similar financing products.

In general, small business owners are likely to approach unknown online lenders with a suspicious eye—many have heard stories of predatory lending practices in the online lending space.

Amazon merchants already have familiarity with the company, so trust and authority is an issue that Amazon Lending will presumably never have to deal with.


Should banks and other lenders be shaking in their boots?


Amazon has the advantage of size, brand authority, trust, and less-stringent lending regulations, giving them an advantage over traditional banks and online lenders alike.

However, Amazon’s entrance into the small business lending space will help encourage the transition to more and more online lending options available to small business owners who don’t qualify for bank loans.

Companies like Amazon, PayPal, and Square are proving that small business owners demand ease and speed when it comes to the small business lending process—qualities that have never been a traditional bank’s strong suit.

If Amazon continues to succeed in its online lending endeavor, there could be more opportunity for everyone—online lenders and small business owners in need of capital included.

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.
Georgia McIntyre

Georgia McIntyre

Manager, Content Marketing at Fundera
Georgia McIntyre is the manager of content marketing at Fundera. She has written extensively about small business finance, specializing in business lending, credit cards, and accounting solutions. Georgia has a B.A. in Economics from Colgate University.
Georgia McIntyre

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