Tuesday, Amazon announced a new Small Business (SMB) lending platform called Amazon Community Lending through a partnership with Lendistry.
A longtime SMB lender toward its own seller network, Amazon will begin offering official short-term loans up to $100,000.
“We are thrilled to launch the Amazon Community Lending pilot program in the U.S. to provide greater access to critical working capital and make the opportunity of selling in Amazon’s store more accessible to even more U.S. small businesses,” Dharmesh Mehta, Amazon’s VP for consumer trust and partner support said.
“Lendistry shares our commitment to championing underrepresented populations of business owners, knowing they often lack access to traditional methods of accessing capital and similar economic opportunities.”
Lendistry is a minority-led SMB and commercial lending fintech and an established Community Development Financial Institution (CDFI) and is part of the SBA Community Advantage lending program. Like many SMB Lenders, the firm helped give out PPP loans, and most of its business comes from providing SBA loans.
‘Amazon came to us’
Lendistry is also a member of the Federal Home Loan Bank of San Francisco.
According to the Amazon press release, the majority of Lendistry’s funding efforts have gone to “low-to-moderate income and other historically disadvantaged business owners and the communities they serve, including African American and Hispanic-Latino populations, and individuals from CDFI-designated investment areas.”
“Amazon came to us with this incredible idea,” CEO and Founder Everett K. Sands said.
“They’re on a mission to support and empower minority-owned businesses, just like us, so it was a great fit. The Amazon seller community is the perfect place to make these kinds of financing programs available that can truly make a difference for a lot of businesses.”
Amazon’s massive seller marketplace is an excellent fit for Lendistry. The firm was founded in 2015, and according to deBanked, as late as 2018 had a staff that numbered in the twenties.
Justin Leto, Co-Founder, and CEO of Idea financial SMB financing said this is just another sign of the progress of the SMB lending industry and the roaring US market this past year.
“For us in the lending industry, it comes as no surprise. So they’ve been offering some form of lending product to their merchants for a long time. I don’t know a whole lot about Lendistry, but perhaps they have something, technologically, or something that Amazon thinks that they can leverage which will make it easier for them to do it rather than Amazon building it themselves.”
Leto said the fact the Lendistry is a progressive, minority-owned business may have something to do with it: “it’s the right way to be looking at businesses.”
Amazon gives out loans?
According to market pulse, there were 461,000 U.S.-based sellers on the Amazon platform in 2020. In 2019, Amazon reported funding over $1 billion to sellers on the platform, becoming one of the largest SMB financiers in the world.
According to Amazon, the firm began offering loans to sellers in 2011, based “on the knowledge that an infusion of capital at the right moment could put small business sellers on the path to success.
Year to date, Amazon and third-party lending partners have lent more than $800 million to small and medium-sized businesses in the U.S. to support their growth.”
However, there are reasons Amazon has branched out of in-house financing. For many years it has been hard to track the growth and health of Amazon Lending, as it is rarely listed on the company’s quarterly filings or brought up during investor calls.
Another reason is likely the biggest: it was invite-only, and it was arbitrary when and why amazon would select sellers for loans. As SMB lending competitor Kabbage wrote in funding options for Amazon sellers article:
“With Amazon Lending, it’s an invitation-only program: Amazon selects the sellers (based on online sales history) that it thinks are going to be the best fit for an Amazon Lending loan. That means that even if you really want a loan and have good sales history, you can’t just go out and apply for Amazon Lending unless Amazon has invited you.”
It’s not just Amazon, but PayPal is another giant player in the lending industry, as Leto attests.
“I can tell you from our experience because we see bank statements in the applications that we receive: PayPal is a big player in lending space,” Leto said.
“I don’t know if they’re not making it a public statement, compared to their other business verticals, but they have a tremendous footing in the small business lending industry.”
How will the loans work?
The release said that Lendistry “will provide term loans targeting a range from $10,000 to $100,000 with periods of up to two years and annual percentage rates generally ranging between 8 percent and 9.9 percent.”
Leto said there is an opportunity for any firm that processes business data or payments to move into the lending industry.
Where banks have previously handled loans, they leave it to smaller firms to process and underwrite for them. He said that the past couple of months had seen surging demand for capital as the US economy runs to all-time highs.
“There’s a massive market for small businesses,” Leto said.
“Banks have pretty much given up on doing the lending to small businesses, and instead have loaned large sums of money to companies like ours so that we can do it more efficiently and provide the small businesses with the loans at a very quick, efficient basis. I think that is something that’s going to continue to grow; it probably is still in the early stages of scale, and if the economy doing well and there’s lots of money out there to deploy.”