Amazon Teams Up With Goldman Sachs
Market Crumbs | Jun 11, 2020 07:34AM ET
The outbreak of COVID-19 in the U.S., which essentially shut down the economy, led to drastically different outcomes for small businesses and large corporations, in particular those with e-commerce offerings.
While small businesses were ordered to temporarily close their doors, companies such as Amazon (NASDAQ:AMZN) benefitted as consumers took advantage of the ease in which they could shop from home.
The long term effects of the shutdowns on American small businesses may not be known for years. However, some recent research has shown it will likely end up being pretty dire.
The National Bureau Of Economic Research predicts one-third of small and medium-sized business do not expect to reopen.
With small businesses reeling, who better to come to their rescue than Amazon, which has seen its stock continuously make new all-time highs as of late.
Amazon is teaming up with Goldman Sachs (NYSE:GS) to issue a digital credit line for small businesses that sell items on Amazon. Merchants will soon be receiving invitations from Goldman Sachs' Marcus brand for credit lines of up to $1 million. The credit lines will reportedly have a fixed annual interest rate of 6.99% to 20.99% and can be drawn or repaid like a credit card.
"We’re super excited about embarking on this journey with Amazon, and thrilled that they chose to partner with us," Goldman Sachs' head of U.S. consumer business Omer Ismail said.
The partnership marks the first time Amazon has used an outside financial services company to make underwriting decisions for its merchants, half of which are independent businesses. Up until now, Amazon has used proprietary data and algorithms to determine which merchants qualify for loans.
Merchants will have to be sure to read the details as there is a maintenance fee if they don’t use at least 30% of their credit line. The credit lines will run on two week cycles and will be subject to late fees if minimum payments are not made.
Amazon will still offer its term loans, which have been provided to more than 14,000 U.S.-based sellers, surpassing more than $1 billion. Amazon utilizes a corporate credit facility from Bank of America (NYSE:BAC) for these loans.
"Our team exists to fuel seller growth, period," head of Amazon Lending Ragui Selwanes said.
"Marcus is the right partner for us because they share this commitment."
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Amazon is currently under fire after having been accused of using third-party seller data to create competing products. Congress recently called on Amazon founder and CEO Jeff Bezos to testify.
As the coronavirus has boosted Amazon to an even more dominant position, its latest move to expand lending to small businesses could prove to be a smart move or potentially lead to more questions from politicians and regulators.
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