Alibaba launches interest-free financing for U.S. small businesses

U.S. small businesses that make purchases around the globe have a new interest-free financing option from Alibaba.com.

The Chinese e-commerce giant launched a product Tuesday that will allow businesses to delay the bulk of their payments by up to 60 days after a purchase ships. It figures to appeal to firms with tight cash flows.

Amid the coronavirus crisis, American small businesses with less than $10,000 in monthly bills had on average only enough cash on hand to cover one month of expenses, according to a recent survey conducted by researchers at Harvard Business School.

Bloomberg

Alibaba’s new product, which is called Payment Terms, is arriving just as an earlier effort by the company to provide financing to U.S. buyers on its e-commerce platform is sputtering.

In 2018, Alibaba launched a partnership with the online lender Kabbage to offer loans that financed online purchases by small businesses. But during the coronavirus pandemic, Kabbage has temporarily stopped processing new loan requests through the Alibaba platform, according to the e-commerce company.

Alibaba’s new product is not a replacement for the program with Kabbage, said Kivanc Onan, a payments executive at Alibaba. “Rather than a low-cost loan, the new product is a trade financing solution embedded directly into our marketplace,” he said in an email.

Under the program with Kabbage, a two-month loan of $20,000 might have cost a small business somewhere in the range of $500 to $1,200, according to a loan calculator on the Alibaba website. The new product will provide 60 days of interest-free financing, though late fees may be charged.

To pay for the financing, Alibaba plans to charge a 2.2% fee to participating companies that sell items on its platform, though that fee is being waived during the pandemic. The program is only open to buyers that meet Alibaba’s qualification standards, and those companies may be required to make upfront deposits of around 30%.

Onan indicated that the product will appeal to sellers of goods because it should increase their sales volumes. He also said that the product should enable smaller businesses to avoid using scarce cash or high-cost loans to finance inventory purchases.

Alibaba’s new product is designed to give owners of small businesses the same opportunities that their larger competitors have, said John Caplan, president of North America and Europe for Alibaba.com. “The playing field should be fair,” he said during a call with reporters.

Alibaba Group is one of the most valuable companies in the world, with a market capitalization of $568 billion as of Tuesday. Like the U.S. tech giants, its moves in the financial services realm are closely watched in the banking world.