Amazon.com Inc. is launching a new business offering loans to some of its online sellers, a move that could boost the growth of its Internet marketplace while exposing it to potential credit risks.
The new program is called Amazon Lending and sellers on the company's marketplace have been sent emails offering loans from Amazon Capital Services Inc., a unit of Amazon, according to a merchant who received such an email from the company recently. The merchant did not want to be identified because Amazon has not announced the program publicly.
An Amazon spokesmen declined to comment.
Getting into the lending business is a big step for Amazon that will expose it to more credit risk, but may also fuel more sales by merchants on its marketplace. Amazon takes a cut of those sales, so revenue and profits could get a boost.
Some online merchants lack upfront cash to buy all the inventory they would like to sell on Amazon.com, especially heading into the crucial holiday season.
Banks and other sources of loans for merchants pulled back in the wake of the financial crisis, leaving an opening for alternative sources of financing. Factoring, a common source of financing in the retail business that is provided by lenders such as CIT Group and Wells Fargo, can be tough to tap for smaller merchants.
"Some of these businesses are only constrained by cash flow," said Scot Wingo, CEO of e-commerce advisory firm Channel Advisor. "These spot loans will help these folks grow by getting them extra cash to buy more product."
ChannelAdvisor helps online merchants sell on Amazon, eBay and other online marketplaces. Wingo posted a copy of one of the Amazon Lending emails on ChannelAdvisor's blog on Thursday.
Amazon is competing against a start-up called Kabbage, which extends cash advances ranging from $500 to $50,000 to online merchants.
"We're flattered that Amazon is building a business modeled on ours," said Kabbage co-founder Marc Gorlin. "It's validating that big companies are getting into the small business financing space."
Former PayPal president and Yahoo ex-CEO Scott Thompson joined Kabbage's board Thursday.
Amazon is lending up to $800,000 to some merchants, Wingo said, adding that this is a pretty aggres-sive entrance into merchant financing. The company is charging some sellers interest rates of up to 13 per cent, but some other merchants are being offered rates as low as one per cent, he added.
"This is definitely cheaper than credit cards and faster and easier than banks, so may fill a big hole for sellers," Wingo said.
Amazon is pre-qualifying some sellers based on their performance on the company's online marketplace.
The money can be used by sellers to buy more inventory and increase sales on Amazon.com, according to the email.
Sellers can sign up for loans through their existing Amazon merchant accounts and if approved, Amazon said it will send the money to their bank accounts within five business days.
Monthly interest payments on the loans will be deducted automatically from merchants' Amazon seller accounts, the email explained.
"We would absolutely be interested in borrowing money like this," said Joshua Wood, vice-president of operations at Ozbo, an online merchant that sells on Amazon.com.
"We have a 65,000 square-foot warehouse that we would love to fill with inventory that we would blow through during the holiday season," he added.
