In his shareholder letter two years ago, Amazon CEO Jeff Bezos said he was looking to team up with banks that could help his company expand its lending program for small businesses that sell on Amazon's websites. CNBC has learned that Amazon Lending, which launched in 2011, ultimately found a partner in Bank of America Merrill Lynch, according to people familiar with the matter who asked not to be named because the alliance is confidential. Partnering with Bank of America allows Amazon to reduce its risk and access capital specifically to provide credit to more merchants so they can acquire inventory. Amazon Lending is an invitation-only program that makes loans of $1,000 to $750,000, with terms of up to a year, for companies that may have difficulty landing traditional business loans. In June 2017, Amazon said it issued more than $1 billion in loans during the previous 12-month period, compared to $1.5 billion in combined loans for the four years prior to that.

Scaling back

But even with the Bank of America deal, Amazon Lending has been tapping the brakes on growth of late. After almost doubling to $661 million in 2016, outstanding loans just barely increased last year to $692 million, according to Amazon's annual report earlier this month.

One person familiar with the program said there was a deliberate effort by Amazon to slow the expansion in 2017 as the company attempts to better understand the credit risks that come with a large-scale lending practice. The total staff size was also reduced as the team scaled back its customer outreach efforts, the person said. Another source involved with Amazon Lending said the slowdown is not surprising because the team has always taken a measured approach to growth. For example, there's never been a public website to promote the lending service, and it still remains available only to top Amazon sellers that need additional financing. The program is not oriented around making money from interest payments, but to support merchants selling on Amazon's marketplace and to boost Amazon's overall sales growth, this person said. Amazon indicated in its 2016 annual report, published a year ago, that it received a $500 million revolving credit facility from a "lender" in October 2016. The company said in its latest annual report that the facility was raised to $600 million "and may from time to time increase in the future subject to lender approval." Sources said the lender referenced in the filings is Bank of America. Representatives for Amazon and Bank of America declined to comment. Amazon Lending isn't the best bet for many businesses once they've matured, especially as competition emerges from companies including PayPal, Square and Kabbage. One source with knowledge of Amazon Lending said annual rates typically range from 6 percent to 14 percent. Stephan Aarstol, the owner of Tower Paddle Boards, was mentioned in Bezos's 2016 letter as having one of the fastest growing companies in San Diego, "with a little help from Amazon Lending." But Aarstol said he no longer borrows from Amazon, which charged him between 11 percent and 13 percent annually, because his company has grown big enough to get more attractive rates elsewhere.

Screenshot of Amazon Lending's first newsletter sent to Amazon sellers in November 2017.

"If Amazon was the only game in town, I'd happily take money from them at whatever rate," Aarstol said. He said that he didn't leave because of a bad experience, "but due to the stage of my business." The slowdown in lending coincides with Amazon's recent company-wide effort to reallocate its resources. Just this week, Amazon said it's cutting hundreds of jobs to improve efficiency in slower businesses while it accelerates faster-growth areas. Schwark Satyavolu, an investor at Trinity Ventures and co-founder of financial tech company Yodlee, said Amazon may be seeing better areas than merchant lending to spend its capital. "It starts to become a return-on-capital question," he said. "Do I lend money and make a few percent on that capital invested, or do I take that capital and plow it into something like Whole Foods, which could give you a much higher return?" Still, sources told CNBC that lending is likely to pick back up now that Amazon has a banking partner. Additionally, Amazon's lending team started sending out a newsletter in November promoting its program for the first time. "Welcome to the first edition of Amazon Lending's Newsletter!" it said. "The Newsletter is designed to connect with sellers like you, to share information that we hope will help you grow your business."

Amazon Lending's first-ever newsletter sent out to sellers in November 2017.

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