Amazon.com Inc. has decided to continue its Amazon Community Lending program, launched a year ago, as a long-term offering to help sellers grow. And it has partnered with downtown-based B.S.D. Capital Inc., which does business as Lendistry, to help it support small businesses with short-term loans.
Since its launch, the program has loaned more than $35 million, and plans to loan more than $150 million in the next three years, to U.S.-based Amazon sellers. Loans provided by Lendistry will range from $10,000 to $250,000, with terms of up to five years.
Amazon sellers — who account for more than half of all units sold in Amazon’s— that are approved for a loan through the program use these funds to grow and to cover other strategic business needs, such as staffing and operations costs, inventory, product development and manufacturing, and marketing efforts to build their brands and grow their customer base.
“Amazon believes businesses of all sizes should have access to financing, payment options, and funds management tools,” Tai Koottatep, director and general manager of Amazon B2B Payments and Lending, said in a statement. “The Amazon Community Lending program was developed to help provide sellers in socially and economically distressed communities with working capital as well as one-on-one coaching, education programs, webinars, and classes to help them grow now, and in the future.”
The majority of the funds Lendistry has disbursed have gone to traditionally low-to-moderate income communities, minority-owned businesses and other historically disadvantaged business owners. The program also provides small businesses access to resources from Lendistry, including one-on-one consulting, webinars and on-demand educational classes.
Strategic Lending
When Lendistry was founded in 2015, the Black-led company was designed with minority business owners in mind.
“When you consider community lending, it’s not a silver bullet, it’s not a one-style-fits-all. You have to have a multitude of products in order to help communities get access to capital,” said Everett Sands, the chief executive of Lendistry. “We’re primarily focused on minorities and those who are struggling in terms of getting access to capital.”
Lendistry offers small business loans, commercial real estate loans, and assistance with government and private programs.
“We have a terminal, which generally businesses are using to improve their cash flow, refinance higher debt … and (revolving) lines of credit which (small businesses) are utilizing to do leasehold improvements (or) tenant improvements,” Sands said. “We have SBA, and that can be used for business acquisition, debt consolidation (and) expansion of working capital. Sometimes we have specialty products like Amazon Community Lending, which is
focused specifically on one of our partners and providing access to capital to their constituents.”
Sands said Amazon recognized that it had constituents looking to get access to capital and wanted a responsible lender that understood the technology needed to create a streamlined process.
“What we were able to do is work with Amazon, the key tech teams, to collect data in an automized fashion, and pre-approve those small businesses,” Sands explained. “Once those small businesses are pre-approved in their Amazon seller dashboard, they’ll see their pre-approval. They can click a button, and that red button essentially takes them to a Lendistry application and then they can apply for their loan.”
Aside from Lendistry, sellers can borrow directly from Amazon Lending or open lines of credit with Marcus by Goldman Sachs.
“But as a seller, you get to control the debt that you’re taking on, but I think the real key to the partnership is that both the seller and Amazon know that this borrower is dealing with a responsible lender. A lender that offers education programs, a lender that also has different products, and I think that’s really key,” Sands said.
Sands said the success of the program is determined by client feedback, but more importantly, risk management.
“Are the clients paying us back? Are we really able to build a true ability to repay? One of the things we wanted to do was with Amazon is launch another iteration of revenue-based financing,” Sand explained. “So, with the Amazon product, we don’t take two years of tax returns or four years of tax returns, things that we do with some of our more traditional loans. We’re actually leveraging data from Amazon, like sales or returns and how long they’ve been on the platform. All those things are going into the ‘ability to repay’ equation.”
Sands added that looking at tax returns and personal financial statements is a good way to determine the right type of loan; however, when it comes to an e-commerce borrower, a lender is more protected by alternatively reviewing the financials of the small business.
The lending company makes its revenue from an initial fee and a “spread.”
“For Lendistry, we do charge an origination fee … up to 3%. That is a factor of rising interest rates which we’re just trying to monitor right now. We also make a spread on loans we borrow from banking institutions and then we loan it out, so the spread is the difference from what we borrow and what we lend out,” Sands said. “Also included in that is what we call the loan-loss reserve. We set a portion of that aside in case borrowers default.”
Small Businesses Persevere
According to Amazon seller Angela Watts, co-founder of San Clemente-based Slyde Handboards, the lending program has been helpful in helping her borrow $29,900 in an efficient manner.
“What was great about the program is that it is just a click of a button. Business owners are super busy and … they approve our loan based on our sales and relationship history with Amazon, which makes sense. They can see what our historical data is already. They have all that information of our revenue,” Watts said. “A lot of lending programs, it goes on your own credit; you have to personally guarantee. (With Lendistry) it was all through the business. Because of that, I went with them versus another program.”
Watts, whose company sells hand boards for bodysurfing, has been an entrepreneur for 12 years and said she believes it is in everyone’s interest that small businesses have access to adequate funding, adding that she thinks government loans like those administered by the SBA are “archaic” and in need of revamping to make it easier for borrowers to navigate.
“Amazon and Shopify, they need us to survive,” Watts said. “Hopefully in the next year or two, SBA will get up with the times to help small businesses get access to capital, but in the meantime, Amazon, Lendistry and Shopify are the easiest, quickest options and least hassle.”
Pat Nye, regional director of the Los Angeles Regional Small Business Development Center, a government-funded program that provides advisory services to small businesses, said owners of small businesses are still facing challenges that arose during the pandemic.
“Emergency resources like the (Emergency Injury Disaster Loan), the (Paycheck Protection Program), the relief grants during the pandemic were great and that helped a lot of businesses out, but now there aren’t so many of those resources and businesses are still struggling,” Nye said. “They went from being shut down to now having high-interest rates and inflation, so economic conditions in some ways never really improved or by some measures got worse, but there aren’t as many emergency resources to try to take care of that.”
Nye pointed out that repayments for the EIDL loans will commence soon, but that many businesses that had to borrow are not in the position to be able to pay them back.
“I feel like there’s kind of a big hangover about to happen with those folks who tried to weather the pandemic and now things really haven’t improved or have even gotten worse. They’re going to have to make some tough decisions,” Nye said.
Another key issue small businesses are facing is a tighter labor market. Nye said companies he has worked with are finding it difficult to find and retain employees.
“We did see a huge increase in the number of clients that we serve over the pandemic.
Before the pandemic, just for my region, we would see on average about 7,000 clientsannually. At the height of the pandemic, we were seeing about 15,000,” Nye said.
“The other thing I’d say is that we do tend to work with a lot of very diverse communities,and the impacts of the pandemic are even heightening that. We’re seeing increases in all the different demographics. We’ve seen a lot of growth in communities that have been historically underrepresented. I am very optimistic that some of the changes from the pandemic are driving some activities and our ability to follow up and concentrate on some of those communities that maybe didn’t have the resources they should have.”
