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Amazon Lending to offer loans to its online sellers

SAN FRANCISCO -- Amazon.com Inc. is launching a new business offering loans to some of its online sellers, a move that could boost the growth of its Internet marketplace while exposing it to potential credit risks.

The new program is called Amazon Lending and sellers on the company's marketplace have been sent emails offering loans from Amazon Capital Services Inc., a unit of Amazon, according to a merchant who received such an email from the company recently. The merchant did not want to be identified because Amazon has not announced the program publicly.

An Amazon spokesmen declined to comment.

Getting into the lending business is a big step for Amazon that will expose it to more credit risk but may also fuel more sales by merchants on its marketplace. Amazon takes a cut of those sales, so revenue and profits could get a boost.

Some online merchants lack upfront cash to buy all the inventory they would like to sell on Amazon.com, especially heading into the crucial holiday season.

Banks and other sources of loans for merchants pulled back in the wake of the financial crisis, leaving an opening for alternative sources of financing. Factoring, a common source of financing in the retail business that is provided by lenders such as CIT Group and Wells Fargo, can be tough to tap for smaller merchants.

“Some of these businesses are only constrained by cash flow,” said Scot Wingo, chief executive of e-commerce advisory firm ChannelAdvisor. “These spot loans will help these folks grow by getting them extra cash to buy more products.”

ChannelAdvisor helps online merchants sell on Amazon, eBay and other online marketplaces. Wingo posted a copy of one of the Amazon Lending emails on ChannelAdvisor's blog on Thursday.

Amazon is competing against a start-up called Kabbage, which extends cash advances ranging from US$500 to US$50,000 to online merchants.

“We're flattered that Amazon is building a business modeled on ours,” said Kabbage co-founder Marc Gorlin. “It's validating that big companies are getting into the small-business financing space.”

Former PayPal President and Yahoo ex-CEO Scott Thompson joined Kabbage's board on Thursday.

Amazon is lending up to US$800,000 to some merchants, Wingo said, adding that this is a pretty aggressive entrance into merchant financing. The company is charging some sellers interest rates of up to 13 percent, but some other merchants are being offered rates as low as 1 percent, he added.

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