There's no denying that Amazon ranks as one of the biggest business success stories of the 21st century - if not the biggest.

Not only has it made itself the world's largest online retailer, but it's permanently altered the retail world, causing seismic shifts in consumer spending habits as well as changing the game for all brick-and-mortar businesses.

Sure, there have been some warts (just ask a big chunk of its workforce or former workers), yet there's no denying that Amazon is a game changer in a lot of ways, including efficiency.

That's why word that Amazon, which has been lending to its business partners since 2011, is amping up its program by partnering with Bank of America Merrill Lynch is so potentially troubling. Changing the retail world is one thing, while changing the finance world is something completely different.

Why is Amazon's lending program so wrong for many businesses?

On the surface, things seem fine, as the program typically lends at rates anywhere between 6 and 14 percent. That's reasonable.

What isn't so reasonable for many small- and mid-sized businesses is that these are term loans that are repayable in a year.

Consider a $500,000 loan at 8 percent. That means the monthly payment would be $43,494 a month - a crushing amount to many businesses because it severely restricts cash flow

Or how about a $300,000 loan at 10 percent?  You'd be paying about $22,000 a month. Still pricey.

Small and mid-sized businesses would be much better off with either revolving loans that can be drawn down and repaid multiple times as conditions warrant or longer-term loans.

Let's look at that $500,000 loan again, but this time through a lender certified by the federal Small Business Administration (SBA). At the same 8 percent, but spread out over ten years, the monthly payment is a far more palatable $6,066.

Yes, you'd be paying about $227,000 in interest over the life of the loan compared to $22,000 over a single year, but think about the $38,000 a month you'd be saving on payments with the longer-term loan. Surely you can put that amount to good use.

The questionable value of Amazon Lending also begs the question: Does the company really need to be in the lending business?

Yes, companies grow by expanding the scope of products and services offered, but it seems as if Amazon may be going a bit too far.

You can make the case that Amazon is reviving the "company store" for the 21st century.

For those who need a quick history lesson, company stores were retail establishments that sold necessities such as food and clothing to employees of a company. They typically were located in remote areas (with little or no competition) and gave easy credit to employees, especially before payday.

The problem is, the company stores basically were monopolies and funneled money back to the company owners. Workers often were left beholden to the company because of debts they accrued.

It isn't hard to see how Amazon's merchants could get caught up in the same sort of scenario, with Amazon pretending to be the benevolent helper, yet tying down its partners long-term in unfavorable situation.

It seems clear that a properly structured loan is the key to business success. What's less clear is whether Amazon actually has its merchants' best interests in mind or merely its own bottom line.

We reached out to both Amazon and Bank of America for comment on this article, and we did not hear back.

Published on: May 2, 2018
Like this column? Sign up to subscribe to email alerts and you'll never miss a post.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.