Amazon Launches Lending to Keep Sellers On Board

The vendor financing business just got a bit more competitive as eCommerce leader Amazon announced Tuesday (Nov. 1) that it is launching a new merchant cash advance option it says is simple and flexible with repayment options that are tailored to the ebb and flow of sales.

The program, which will be administered by Parafin, marks the latest offering of this kind, tying secured credit to sales at a time when the cost of borrowing is going up and the availability of credit is tightening amid growing economic uncertainty and rising interest rates.

The new merchant cash advance joins other Amazon seller financing options, such as the invite-only Amazon Lending program, but is open to all eligible sellers and offers credit plans ranging from $500 up to $10 million in working capital.

Repayment is based on a fixed percentage of the seller’s gross merchandise sales (GMS), with no minimum payments, a fixed capital fee in place of interest, and no collateral required.

“Today’s launch is another milestone in strengthening Amazon’s commitment to sellers, and builds on the strong portfolio of financial solutions we already provide,” Amazon WW B2B Payments and Lending Director and General Manager Tai Koottatep said in a statement, noting the significant expansion of reach and capabilities and broader access to capital that sellers can use.

“[It] helps them control their cashflow, and by extension, their entire business,” she added.

Seller Financing Fans Out

To be sure, Amazon is not alone in its vendor financing endeavors, as rival marketplaces are also actively trying to help sellers of various sizes confront the need for working capital in a clamped-down credit market.

Surveying the landscape of these programs, it’s clear that more sellers are tapping into this form of financing for the way it natively leverages sales for repayment and keeps out early repayment fees and other ancillary costs that ride along with traditional loans.

For example, during its third quarter 2022 earnings call in October, Shopify President Harley Finkelstein said the company’s Shopify Capital offering has now been rolled out in 14 countries, noting that as of August it had lent a cumulative $4 billion to sellers since its 2016 inception.

“The team continues to fund and advance money to more merchants as they ramp up for Black Friday and Cyber Monday,” Finkelstein said. “Capital has made a real difference in merchant success rate, particularly as more and more banks and lenders are shutting off the spigot to smaller businesses,” noting that his company offers both merchant cash advance and business loan options.

At the same time, PayPal Working Capital, a WebBank-backed offering, has been lending to sellers since 2013 and requires that they process a minimum of $20,000 in PayPal sales annually for Premier accounts or a floor of $15,000 in annual PayPal sales for sellers with a Business PayPal account.

Financing options attuned to the ebb and flow of marketplace sellers are needed now as more small and medium-sized businesses (SMBs) report reduced confidence in their ability to survive a more severe sales slowdown.

As noted in the PYMNTS report, “The Main Street Health Survey Q3 2022: SMBs Battle Inflation,” “SMBs open for three years or fewer have become more than twice as likely to report being at risk since January, at 6.7% versus 3.2%,” and the smaller they are, the more in doubt.

In the Q3 report, 12% of the smallest SMBs said they were concerned about having the funds to stay in business through a prolonged downturn — double the 6% that said so in January.

See the report: The Main Street Health Survey Q3 2022: SMBs Battle Inflation

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