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Comment by softbuilder | Hacker News Reader

I take a completely different view. If these sellers are only lacking capital in order to see growth, wouldn't they be getting it from others by now, even in a tight lending market? I look at the wording: "pre-qualified for a loan up to <XXX see below>" and then "If approved, the funds will be advanced" and it reads just like every junk mail credit application ever. You are "pre-qualified" because you made it onto the suckers list, and you'll be approved if you're gold plated. Here comes the internet lending bubble?

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Thing is, Amazon is in a different game than your normal lending agency. Proper lending agencies make their money from the interest, and thusly, they have a desire to make your interest higher. Amazon on the other hand makes money from direct sales- they might have interest there to discourage people from borrowing without reason, but they can also chance it at a lower rate because of the possibility of making more money via real sales.

It's more than that actually.

Let's say that Amazon lends money to a high volume seller. And we know that Amazon is going to take a cut of sales. But, let's say, hypothetically, that all of this is a wash, in the end it ends up netting Amazon zero direct profit. Has Amazon lost money on this effort then?

Consider the indirect benefits to Amazon. By increasing the amount of business flowing through the site they further cement their brand and they increase the network effect of using the site. They bring more customers to the table who then become repeat customers due to a good experience on the site. Or they bring additional business as people buy related or unrelated merchandise on the site, perhaps in the same order. And they increase the potential customer base for buying Amazon gift certs. All of these things tie together and help bring Amazon more business.

Now, in reality Amazon is going to make sure it makes money on these loans and on direct sales as well, but it doesn't have to make a very high margin on such things because of the indirect effects I mentioned which provide additional margin.

> If these sellers are only lacking capital in order to see growth, wouldn't they be getting it from others by now, even in a tight lending market?

As an ex bonds guy, I can say for sure that the lending market isn't close to efficient. One anecdote - the Fed has extended a ton of credit to banks (large and small) in the last 4 years. They've also been concerned in the process because those banks have hoarded the capital to cover loan default losses.

Small and Medium sized businesses are often unable to get capital because a. there's far too much friction in the application process, and b. banks often use the same metrics to evaluate large and small businesses, but oftentimes the credit of a small business aligns better with the credit of it's proprietor, than it does with any other factors.

If these sellers are only lacking capital in order to see growth, wouldn't they be getting it from others by now, even in a tight lending market?

This one's easy: because the lending market isn't even close to efficient.

Would love to hear more details on this.

Amazon has more information about these companies' business than anyone else in the world. They'll have an edge in knowing whether a loan is a good investment or not.

Agreed. I have no worries about Amazon covering themselves. They will surely benefit from this. Will the sellers? Will the customers? This is what I'm wondering about.

I think it may be a lot easier for sellers doing most of their business through Amazon to get better loan terms. Traditional banks are harder to convince on this type of business model.

The lending market is just screwy right now, working capital is tough for a lot of smaller companies to get.

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