Alibaba Group Holding Ltd is selling its small-business lending arm to the company that already controls payments affiliate Alipay, separating itself from the last of its major financial units ahead of an initial public offering expected next month.

The e-commerce giant will sell the loan business to Small and Micro Financial Services Co for $518 million in cash and annual fees for seven years, it said in a regulatory filing in the United States on Wednesday.

Small and Micro Financial Services already owns Alipay, which is used by shoppers on Alibaba's websites. The agreement also lifts a $6 billion cap, under certain conditions, on funds that Alibaba could receive if Alipay or its parent company goes public, the filing showed.