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Published On: Wed, Nov 21st, 2018

How Amazon Has Affected Small Business Finance

Amazon is known for stepping into just about every aspect of online business, so it shouldn’t come as a surprise that the company partnered with Bank of America earlier this year to expand the reach of its existing small business loan service – Amazon Lending. Because of the sheer size and capabilities of Amazon, any industry that the company enters into feels at least a ripple of the wave that is created when it enters the market. Just as eBay felt it when Amazon took over as the leader in e-commerce, big banks have had to respond to the influx of alternative online lenders offering tailored business funding by upping their approval rates for small businesses.

photo/ Gerd Altmann

Amazon Lending Loaned $1 Billion to Small Businesses Last Year Alone

At the end of 2017, Amazon released an announcement stating that the company had granted approximately $1 billion worth of business loans to more than 20,000 applicants from the United States, United Kingdom, and Japan during a 12-month stretch. That’s a tremendous uptick in approvals even for Amazon Lending, which has granted roughly $3 billion worth of loans since the service began offering loans ranging in size from $1k to $750k back in 2011. Amazon Lending specializes in providing loans to Amazon merchants, viewing on-site merchant history as one of the primary determining factors. Being that Amazon currently has more than two million merchants active on its platform, it’s understandable that the company would want to become the credit provider for those businesses.

Banks Are Now Granting More than 25% of Loan Applications

Following the 2008 financial crisis, the U.S. saw some of the lowest loan approval rates in history, but since 2012 the rate has been steadily increasing. As of November 2018, banks are now approving more than a quarter of all small business loan applications. This is a stark contrast from the aftermath of the global financial crisis, during which time less than 10% of all applications were approved. With Amazon and other alternative lenders making it easier than ever to get a small business loan, banks have been pressured into providing more competitive terms and approval rates.

Providing a Feasible Alternative to Conventional Business Funding

Ultimately, Amazon has changed the small business borrowing game by reinforcing the new, open lending environment in which banks are no longer the only option. Just a decade ago it was nearly impossible to get a business loan from an institution other than a bank or private lender. With Amazon Lending approving the majority of applications submitted by Amazon merchants, and the site being the world’s largest hub for e-commerce – although Walmart is closely trailing – it wouldn’t be surprising to see this kind of credit service become more popular than traditional bank loans within the next decade.

What Does this Mean for Businesses with Bad Credit?

While most lenders are still hesitant to approve high-risk borrowers, anyone can now set up shop on Amazon and gradually work their way towards a merchant loan from Amazon Lending. That kind of hope is motivating a lot of people with poor credit to start repairing their credit and participating in the ever-growing e-commerce wave.

Author: Zoe Price

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