Wal-Mart’s Sam’s Club Chain To Provide Business Loans To Its Customers?

July 22nd, 2010 by Reed Allmand

Wal-Mart has announced that its Sam’s Club chain is teaming up with a lender to offer loans of up to $25,000 to its small business members in an effort to improve its profitability and to offer bank-like financial services to its customers.

The division of Wal-Mart Stores Inc., which is based in Bentonville, Ark., is testing a program with Superior Financial Group, one of 13 federally licensed nonbank lenders, and will offer $5,000 to $25,000 loans to members who qualify. They don’t have to spend the money at Sam’s Club.

The loan program isn’t Wal-Mart’s first attempt to offer financial products. In 2007 it tried to establish a bank, but dropped the bid after heated debate over whether the world’s largest retailer should be allowed to gain the added financial power of a federally insured bank.

The company says that its business loan program will target minority-, women- and veteran-owned businesses who have been denied loans by traditional banks.  And while the company claims that those taking out business loans from them won’t be required to spend that money in their stores, it is alarming that they are targeting such a vulnerable population of business owners who are more likely to end up in bankruptcy than other populations.  Could this be subprime lending for small businesses?  Could many of these small business owners end up in Chapter 11 bankruptcy because they can’t pay back their Wal-Mart/Sam’s Club $25,000 “business” loan?

Wal-Mart has already admitted that many of the people they will target with the loans are business owners who have already been denied loans from traditional banks.  Many small business owners simply aren’t profitable enough or don’t have solid business plans that would allow them to take out loans and avoid a Chapter 11 bankruptcy filing.