Tuesday, February 4, 2020

Why The Goldman-Amazon Bet On SMB Lending Is No Sure Thing (AMZN; GS)

From PYMNTS.com:
In the platform economy, scale matters.

And in leveraging Amazon’s scale as a platform — with millions of small to medium-sized businesses (SMBs) and even micro-sized businesses hawking pretty much everything under the sun — it might seem a “slam dunk” if, say, a financial industry powerhouse were looking to bring small business loans to a new market.

To that end, Goldman Sachs Group, undergoing a very public transformation from Wall Street titan pivoting toward filling the the financial needs of Main Street, is reportedly in discussions with Amazon to bring small business loans to Amazon’s platform.

Goldman, according to reports in Bloomberg, would be added to the Amazon lending platform, which has traditionally helped merchants get the funding they need to get inventory. Amazon Lending traces its roots back to 2011, and the company had $863 million in SMB loans, according to recent filings with the Securities and Exchange Commission.

The Challenge
In a way, traditional retail naturally represents a catch-22 of sorts. You need money to make money, goes the old saying. And to get the inventory that gets the top (and hopefully, bottom) lines rolling, merchants typically have to get cash on hand through loans — a bank loan, or from credit cards, etc. It’s not a one-off process, either. Smaller firms, which have to juggle lumpy cash flow, may use credit as a way to keep operations, well, operating, as they may see payment terms stretched by customers (especially if they operate across lengthy supply chains).
The Goldman Sachs joint effort with Amazon could see loans hit the market as early as March, according to the Financial Times.

To get a sense of just where the lending partnership may target — if it comes to fruition — consider the fact that the loans have ranged from $1,000 to $750,000. And Amazon has noted that the small businesses are “invited,” which implies there’s a fair amount of vetting going on by Amazon, which may be of use to Goldman as the latter seeks to go where it has not gone before.

At first glance, the fruit may appear low-hanging, indeed. As noted late last year, PYMNTS found, in collaboration with Fundbox, that as much as $3.1 trillion is owed (as a net amount) to suppliers for services and products provided on any given day. We’ve defined trade credit as the value of the accounts receivable that has been invoiced and for which companies are awaiting payment. The ripple effect is there — if that capital weren’t locked up it could be deployed in growing businesses....

"Leaked screenshots show Amazon is partnering with Goldman Sachs and other banks to launch a new lending marketplace for sellers" (AMZN)