Walmart Sam’s Club To Offer Small Business Loans

The Sam’s Club division of Walmart (NYSE:WMT), which primarily does business with small companies, means to do what banks will not. It has started a test program to offer loans of as much as $25,000 to its members.

The move is carefully calculated and based on business loan trends that have been in place since the recession began. “Only half of small businesses that tried to borrow last year got all or most of what they needed, according to a survey by the National Federation of Independent Business. In the mid-2000s, 90% of businesses said they got the loans they needed,” Sam’s Club said.

The program will be done with Superior Financial Group, a large Small Business Administration lender. One reason for the plan is that 15% of Sam’s Club members were denied loans to run their businesses last year. The loans will carry a 7.5% APR and will have a term of 10 years. The move is extremely risky because it will extend credit to a number of small companies that banks do not think are creditworthy. Sam’s Club must assess whether the firms were rejected due to the overall caution of banks to make loans because of the economic climate or due to their weak balance sheets and cash flow.

But Sam’s Club has two important incentives to help its members. The first is that the economy is not as bad as it was in 2008 and 2009. That may make the earning power of small businesses better than a year ago. The second, and more powerful incentive, is that companies with access to capital are more likely to buy products and services from Sam’s Club. Money put back into the retailer’s pockets is money that carries very little risk at all.

Walmart has wanted to get deeper into the financial services business for several years. A number of states have denied it charters to set up actual banks. The world’s largest retailer has gotten around that partly by offering Walmart credit cars for individuals and businesses. The company also has programs for tax advice and check printing.

The Sam’s Club foray into the loan business, even though it is with a financial services company partner, will lead the retailer to becoming a serious competitor for community banks.

Douglas A. McIntyre