Amazon Marketplace sellers have a new place to turn if they need cash: Amazon.
The e-commerce giant is getting into the loan business with Amazon Lending, which will offer direct financing to its marketplace merchants through a division called Amazon Capital Services. The program offers sellers another way to get credit, enabling them to purchase inventory in a cash flow crunch.
The folks at ChannelAdvisor posted a copy of a letter that a seller received from Amazon outlining how the lending program works. Sellers apply for loans directly from their Amazon accounts. (In this case, the seller had been pre-qualified for a certain amount that was redacted.) Next step: “If approved, the funds will be advanced to your Amazon Seller Account within approximately five business days, and we will initiate a disbursement to your bank account on file.” Loan re-payments are then deducted automatically from the seller’s account.
The cash isn’t necessarily cheap. ChannelAdvisor says the offer letters it has seen put the interest rate around 13 percent; however, it appears likely that Amazon will offer variable pricing based on creditworthiness and other factors. ChannelAdvisor CEO Scot Wingo later told Reuters that some sellers have been offered as much as $800,000 in credit and rates as low as 1 percent.
Is borrowing from Amazon a good deal? It comes down to the specific terms and your other options. ChannelAdvisor notes that bank loans are tougher to come by and usually take longer to process. Factoring is another option for retailers, but it’s not for everyone. Credit cards can be a very expensive source of capital, though an Amazon loan with a 13 percent interest rate isn’t much better; the average rate on fixed-rate credit cards was 13.81 percent at the end of September, according to Bankrate.com. Variable-rate cards were a bit higher; cash-back and rewards cards likewise tend to carry higher rates, though it depends on the account holder.
The news does signal that Amazon has a growth-minded strategy for its Marketplace, which could bode well for the smaller retailers who sell there. Plus, it’s usually a good thing for businesses to have options. What say ye, sellers: Will you take Amazon up on its credit offer if
a letter arrives in your inbox?