Can’t get a small business loan – try Amazon

Watch out bankers, the retailer that sells it all is moving into the loan business. And it’s possible they have more information on credit quality, inventories and sales than you do.

The story from the Wall Street Journal’s Sarah E. Needleman and Greg Bensinger talked about the online retailer’s move into commercial lending, especially to small businesses that may have trouble getting a loan from more traditional channels. The program, which started last year, is designed to get cash to businesses quicker than a traditional loan, according to the story.

They explain:

Merchants who spoke to The Wall Street Journal said they were offered loans ranging from $1,000 to $38,000 apiece, with interest rates from less than 1% (for one of them) to 13.9% (for most who were interviewed). Small-business credit-card interest rates typically range from 13% to 19%.

Those who received an Amazon Lending pitch also characterized themselves as heavy sellers of goods through Amazon’s website.

Some sellers question the logic of handing over to Amazon yet another role that’s so critical to their independent businesses.

But there could be issues for borrowers, Needleman reports in a sidebar to the piece. One of the biggest questions: Since Amazon packages and ships some merchandise for others, would they be able to seize inventories for those who can’t repay loans?

And then there are questions about interest and restrictions:

Beverly Harzog, a credit analyst in Atlanta, says interest rates for small-business credit cards typically range from 13% to 19%, depending on borrowers’ credit history. While Amazon’s reported rates are lower, some merchants told the Journal that they were required to pay back their loans within either four or six months. By contrast, with most credit cards “you can carry your balance for as long as you want, as long as you’re under your credit limit,” says Ms. Harzog. Just keep in mind “you’re going to pay extra interest to do that,” she adds.

Merchants who borrowed funds from Amazon had differing opinions about whether the loans’ terms restrict them to using the funds to buy only merchandise they’d sell through its marketplace. Several of the Amazon Lending offers reviewed by the Journal state: “Use these funds to purchase inventory and increase your sales on Amazon.com.”

Meanwhile, credit cards, bank loans and many other funding options typically don’t come with restrictions on how the funds they provide can be used, says Ms. Harzog.

But with the holidays coming, bringing the need for more inventories, the quick, short-term loans could be exactly what some merchants need to boost sales. Many merchants may not be able to borrow from other places and Amazon’s lending program could inject some much-needed cash into their accounts.

I find this story fascinating, not so much for the news, but for the questions it leaves. First, it would be interesting to see if Amazon would disclose more about the loans and their economic impact on sales after the holidays.

I also don’t think that banks like Citigroup and JPMorgan Chase are exactly worried about Amazon stealing their business. They’re just too big to care. It’s more an issue for the smaller, local lenders and credit unions that Amazon is taking a slice of their business. Could this be another way that big box retailers are pushing out locals?

Then there’s the obvious chance for others to copy the model. If Wal-Mart is trying to become a retail banker, what’s to stop them from lending to their suppliers and wholesalers? It’s interesting to think of the exclusive deals that this might give the world’s largest retailer.

So, instead of getting a loan based on your accounts receivable, you can get it from Amazon. And with the potential for rates to be lower than a credit card, there are some obvious advantages.

For the media, there’s a lot of opportunity for follow up.