• Market Crumbs

Amazon Teams Up With Goldman Sachs


Image via Daniel Eledut on Unsplash

The outbreak of COVID-19 in the U.S., which essentially shut down the economy, led to drastically different outcomes for small businesses and large corporations, in particular those with e-commerce offerings.


While small businesses were ordered to temporarily close their doors, companies such as Amazon benefitted as consumers took advantage of the ease in which they could shop from home.


The long term effects of the shutdowns on American small businesses may not be known for years. However, some recent research has shown it will likely end up being pretty dire.


The National Bureau Of Economic Research predicts more than 100,000 small and medium-sized businesses have permanently shut down as a result of the coronavirus lockdowns. A survey conducted by Facebook found that about one-third of small and medium-sized business do not expect to reopen.


With small businesses reeling, who better to come to their rescue than Amazon, which has seen its stock continuously make new all-time highs as of late.

Amazon is teaming up with Goldman Sachs to issue a digital credit line for small businesses that sell items on Amazon. Merchants will soon be receiving invitations from Goldman Sachs' Marcus brand for credit lines of up to $1 million. The credit lines will reportedly have a fixed annual interest rate of 6.99% to 20.99% and can be drawn or repaid like a credit card.


"We’re super excited about embarking on this journey with Amazon, and thrilled that they chose to partner with us," Goldman Sachs' head of U.S. consumer business Omer Ismail said.


The partnership marks the first time Amazon has used an outside financial services company to make underwriting decisions for its merchants, half of which are independent businesses. Up until now, Amazon has used proprietary data and algorithms to determine which merchants qualify for loans.


Merchants will have to be sure to read the details as there is a maintenance fee if they don’t use at least 30% of their credit line. The credit lines will run on two week cycles and will be subject to late fees if minimum payments are not made.


Amazon will still offer its term loans, which have been provided to more than 14,000 U.S.-based sellers, surpassing more than $1 billion. Amazon utilizes a corporate credit facility from Bank of America for these loans.


"Our team exists to fuel seller growth, period," head of Amazon Lending Ragui Selwanes said. "Marcus is the right partner for us because they share this commitment."


Amazon is currently under fire after having been accused of using third-party seller data to create competing products. Congress recently called on Amazon founder and CEO Jeff Bezos to testify.


As the coronavirus has boosted Amazon to an even more dominant position, its latest move to expand lending to small businesses could prove to be a smart move or potentially lead to more questions from politicians and regulators.


Leftover Crumbs

  • Low interest rates are here to stay. The Federal Open Market Committee voted to leave interest rates near zero and signaled they will remain near zero through 2022. Regarding interest rates, the Fed "expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." The Fed sees U.S. GDP dropping by 6.5% this year and rising by 5% in 2021.

  • Mortgage demand sees continued strength. Mortgage applications to purchase a home rose 5% last week and are now 13% higher than the same period a year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. People took advantage of lower interest rates, as applications to refinance jumped 11% and now stand 80% higher than the same period a year ago. The refinance share of overall mortgage activity jumped to 61.3% from 59.5% the previous week.

  • Mall merger falls apart. Simon Property Group has terminated its $3.6 billion deal to acquire Taubman Centers, saying Taubman has breached its obligations. Simon said Taubman failed "to take steps to mitigate the impact of the pandemic as others in the industry have, including by not making essential cuts in operating expenses and capital expenditures." Simon also said the "COVID-19 pandemic has had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry."

  • Ford nearing normalcy. Ford, which resume production at its U.S. plants on May 18, is nearing pre-coronavirus output levels. "By July 6, we will expect to have all of our U.S. plants operating at pre-COVID patterns," Ford COO Jim Farley said. Farley also admitted there will be "some impact" on the timing of launches of upcoming vehicles such as the new F-150, Bronco SUV and Mustang Mach-E electric SUV.

  • Tesla turns to semi truck. Tesla co-founder and CEO Elon Musk told employees that the Tesla Semi truck will begin volume production. "Production of the battery and powertrain will take place at Giga Nevada," Musk wrote in an email to employees. Musk said production of other components will likely take place in other states without disclosing where. Musk said in 2017 when he unveiled the Tesla Semi truck that production would begin in 2019.