Alibaba launches interest-free financing for small businesses

Dive Summary:

  • Chinese e-commerce conglomerate Alibaba launched an interest-free financing option on Tuesday, Payment terms, which will allow businesses to delay most of their payments for up to 60 days after a purchase is shipped, although late fees may be charged.
  • Alibaba plans to charge a 2.2% fee to participating companies that sell items on its platform in exchange for financing, American Banker reported. But Alibaba is waiving that fee during the coronavirus pandemic.
  • It’s not Alibaba’s first effort to attract small businesses. The Chinese mega-company partnered with cabbage more than a year ago to offer loans that financed small business online purchases. But Kabbage temporarily stopped processing new loan applications through Alibaba in March when refocused its efforts on the Paycheck Protection Program Loans (PPP), Alibaba said.

Diving information:

Businesses that qualify for the Payment Terms may be required to make advance deposits of around 30%, Alibaba said. Under the Kabbage partnership, by comparison, a $ 20,000 two-month loan could have cost a small business $ 500 to $ 1,200, according to a calculator on Alibaba’s website.

The payment terms, however, do not replace Kabbage’s offers, said Kivanc Onan, an Alibaba payments executive. american banker in an email. “Rather than a low-cost loan, the new product is a trade finance solution built directly into our market,” Onan said.

The option can also prevent small businesses from needing to draw on their cash reserves to finance inventory purchases. Small American businesses with less than $ 10,000 in monthly bills, on average, have enough cash on hand to cover a month of expenses, a Harvard Business School Survey showed in April.

The payment terms are designed to give small business owners the same opportunities as their larger competitors, John Caplan, Alibaba’s president for North America and Europe, told reporters in a call. “The playing field must be fair,” he said.

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