Over the past couple of weeks, bits and pieces have leaked out about a new commercial loan pilot program from Amazon Inc. and how the online retail behemoth’s entry into the small business lending could put credit unions, banks and other lenders on high alert.
Releasing very few details, the Seattle-based company did confirm it rolled out its Amazon lending program through Amazon Capital Services Inc. at the end of 2011 to serve sellers of all sizes.
Amazon online merchants involved in the program told The Wall Street Journal the loans that they were able to secure ranged from $1,000 to $38,000 and had interest rates of between 1% and 13.9%. The company is also apparently offering small business credit card interest rates that range from 13% to 19%.
For credit unions, the reaction has been mixed on what Amazon’s latest venture could mean to their efforts to start and maintain their business lending programs given the retailer’s global reach.
“It’s no doubt aligned to the higher risk, higher reward segment of small business and should play well with home-based firms that find traditional financing and merchant services availability difficult to obtain due to their lack of storefront,” said Bill Beardsley, president of Michigan Business Connection LLC, a CUSO that underwrites and originates commercial loans and manages more than $200 million in credit union business loans.
Amazon has not responded to several requests from Credit Union Times on more details about its lending program.
“This proves that there is a market to serve small business that is not currently being well served,” said Guy Messick, attorney with Messick & Lauer PC in Media, Pa., who has extensive expertise in CUSO startups.
Rather than seeing Amazon as a competitive threat, Beardsley is optimistic that there may be opportunities to work with the online retailer.
“The credit union business lending model is based on intimacy and service, not one size fits all global scale, and it’s certainly possible that the two can co-exist, maybe even work together, to help small businesses succeed,” Beardsley offered.
While Amazon may be seen by some as a foe encroaching into unchartered territory for the company, credit unions might still have an edge.
“Credit unions continue to offer products that meet the needs of small business owners through personal service, products tailored to specific needs, credit card programs, SBA 7(a) loans and numerous other product offerings,” said Tony Lillie, chief credit officer and credit union member business manager for CU Companies, a New Brighton, Minn.-based CUSO that offers business lending, investment, realty and title services to more than 70 credit unions.
That includes the ability to offer lower loan fees, lower interest rates, and in some cases, annual dividends, Lillie said. Still, exceptional service to members may be the advantage credit unions wield over Amazon and other nontraditional lenders.
“From inside our business as a CUSO, we see where that personal service is appreciated and necessary,” Lillie said. “We’ve seen when our credit unions’ borrowers have initially gone to the larger lender. Those lenders simply don’t have the flexibility in their loan programs and aren’t in tune with the borrowers’ needs.”
Meanwhile, Lillie acknowledged Amazon may certainly have a spot on the lending playing field.
“This move by Amazon to fill the role of a traditional bank is very welcome into the marketplace,” Lillie said.
Instead of Amazon having to fund all of their selling partners’ working capital needs, Jack Antonini, president/CEO of NACUSO in Newport Beach, Calif., said he would like to see the company partner with credit unions that can help the local businesses that Amazon is helping today. “Amazon doesn’t have unlimited capital, so working with a partner makes sense,” he said. “Let’s see if Amazon, with some credit union business leaders, can come up with an innovative, collaborative way of making these loans together for the benefit of credit union small business owners throughout the country.”