Dive Brief:
- Chinese e-commerce conglomerate Alibaba on Tuesday launched an interest-free financing option, Payment Terms, that will allow businesses to delay the majority of their payments by up to 60 days after a purchase ships, 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 the financing, American Banker reported. But Alibaba is waiving that fee during the coronavirus pandemic.
- It's not the first effort Alibaba has made to appeal to small businesses. The Chinese mega-firm partnered with Kabbage more than a year ago to offer loans that financed small businesses' online purchases. But Kabbage temporarily stopped processing new loan requests through Alibaba in March when it refocused its efforts on Paycheck Protection Program (PPP) lending, Alibaba said.
Dive Insight:
Companies that qualify for Payment Terms may be required to make upfront deposits of about 30%, Alibaba said. Under the Kabbage partnership, by comparison, a two-month loan of $20,000 might have cost a small business $500 to $1,200, according to a calculator on Alibaba's website.
Payment Terms, however, is not a replacement for Kabbage’s offerings, Kivanc Onan, an Alibaba payments executive, told American Banker in an email. "Rather than a low-cost loan, the new product is a trade financing solution embedded directly into our marketplace," Onan said.
The option may also keep small businesses from needing to dip into their cash reserves to finance inventory purchases. U.S. small 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.
Payment Terms is designed to give small-business owners the same opportunities as their larger competitors, John Caplan, Alibaba's president of North America and Europe, told reporters on a call. "The playing field should be fair," he said.
