Goldman Sachs, traditionally known for its elite clientele and high-stakes investment banking, has increasingly dipped its toes into the world of small business lending. One of its notable moves was the £75 million credit facility extended to Capify in 2019, a provider of merchant cash advances (MCAs) and small business loans. This deal marked a significant pivot for Goldman Sachs, indicating a broader strategy to penetrate markets outside its historical focus. However, Goldman’s motivations and practices in this space invite scrutiny, particularly as it forges new partnerships with tech giants like Amazon.
Capify Deal: A Step into Alternative Lending
The £75 million facility provided to Capify aimed to fuel the MCA provider’s growth, particularly in offering quick, flexible financing to small businesses unable to secure traditional loans. At face value, this partnership was a lifeline for small businesses in the UK, allowing Capify to expand its reach and serve businesses struggling with access to affordable capital. However, the deal also reflected Goldman’s calculated attempt to profit from the underserved small business lending market—a sector where alternative lenders have historically thrived.
Amazon and Goldman Sachs: A Tech-Lending Alliance
In addition to its partnership with Capify, Goldman Sachs has explored collaborations with Amazon to further penetrate the small business lending market. Reports surfaced that the bank was in talks with Amazon to offer loans to small and medium-sized merchants operating on the retail giant’s marketplace. This initiative would build on Amazon’s existing merchant lending program, which has provided loans since 2011 using algorithms to identify qualified sellers.
Amazon’s lending program had $863 million in outstanding SMB loans as of the end of 2019, with amounts ranging from $1,000 to $750,000. By partnering with Goldman Sachs, Amazon would effectively outsource part of its lending operations, leveraging Goldman’s resources and infrastructure to expand its program.
For Goldman Sachs, this partnership aligns with CEO David Solomon’s strategy to transform the bank into a leader in “banking-as-a-service.” Solomon has been vocal about pursuing partnerships that white-label Goldman’s financial products for use by third parties, a model he hopes will generate significant revenue from consumer and small business banking.
Leveraging Big Tech to Challenge Fintechs
Goldman’s moves in the small business lending space reflect its broader push to compete with fintechs by partnering with Big Tech. Its collaboration with Apple to launch the Apple Card in 2019 was a similar step, granting Goldman access to Apple’s 100 million U.S. users. Within a month of its release, the card had generated $736 million in loan balances, highlighting the bank’s ability to scale rapidly through partnerships.
The Amazon and Apple partnerships provide Goldman access to digital ecosystems that dwarf traditional brick-and-mortar operations. By aligning with tech giants, Goldman can leverage their vast customer bases and data capabilities to underwrite loans more efficiently, bypassing the costly infrastructure of traditional banking.
Criticism and Concerns
While Goldman Sachs’ entry into alternative lending and tech-enabled finance has been lauded for its innovation, it has also drawn criticism. The bank’s historical focus on profitability and its elite clientele raises questions about its true commitment to democratizing access to capital. For small businesses, partnerships like those with Capify or Amazon could mean access to faster financing—but at what cost?
Critics argue that Goldman’s involvement in the MCA space, where high fees and opaque terms are common, risks exacerbating debt cycles for vulnerable small businesses. Furthermore, its selective approach to financing, both through Capify and Amazon, highlights its preference for partnerships that guarantee profitability rather than broader accessibility.
The Future of Goldman Sachs in Small Business Lending
Goldman Sachs’ moves into the small business lending space underscore a strategic shift toward consumer-facing markets, driven by partnerships with Big Tech and alternative lenders. While the bank’s speed and scale in this space are impressive, the implications for small businesses remain complex. As Goldman continues to expand its footprint in lending, its practices will likely face ongoing scrutiny from regulators, industry stakeholders, and the small business community.
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