PayPal’s new cash advance scheme has delivered over £1 billion in finance to ambitious, growing small businesses across the U.K. Its Working Capital program gives lending decisions to entrepreneurs within a matter of minutes, helping innovative start-ups and small firms to get access to the finance they need to break new ground. PayPal’s lending to small and medium-sized enterprises (SMEs) throughout the U.K. is up roughly 60 percent year-on-year, with the world-leading eWallet confirming it had lent £625 million to small firms in May 2018 and £400 million in July 2017.
Thus far, a fifth of the 116,000 cash advances processed by PayPal’s Working Capital program went solely to help businesses grow. The program targets PayPal-registered firms, giving them a chance to borrow up to £150,000 as a cash advance right from the global digital payments giant. Small firms can borrow up to the value of 30 percent of their annual sales made via the PayPal platform.
PayPal Working Capital: ‘Bridging a Gap’ Between Mainstream and Alternative Finance
Norah Coelho, director of business financing at PayPal U.K., said that the platform’s Working Capital program launched ‘in response to a real need for finance that works just as flexibly as the smaller businesses we serve’. Ms Coelho also confirmed that the program had lent to ‘more than 37,000 U.K. small businesses’, underlining its ability to ‘bridge a gap’ where high-street finance lenders come up short.
The benefits of the Working Capital program are clear for all small businesses that already utilize the PayPal platform. PayPal’s ability to access transaction data on applicants for finance means the scheme typically issues cash advances in less than an hour once the swift online application submits. Coelho believes that this is a huge benefit to small firms that need an agile lender, with the ability to ‘apply at any hour of the day and avoid lengthy in-branch processes’. Almost three-quarters (70 percent) of all PayPal Working Capital loans made in 2018 happened outside traditional bank branch hours, highlighting its convenience and accessibility.
How does PayPal make money from the program? Borrowers must pay a fixed fee to PayPal for access to the facility. These fees vary from business to business but are reportedly a percentage of a firm’s PayPal revenue. That allows businesses to repay their loans when they make sales via PayPal. However, repayments are never greater than 10 percent of the total agreed cash advance, inclusive of the fixed fee.
Understanding the Benefits of PayPal’s Cash Advances
Men’s shoe retailer, The Shoe Snob, is a prime example of a growing online business that’s benefited from PayPal’s Working Capital program. Co-founder Ngoni Tshekeche said that ‘convincing the bank of [their business’] potential’ was ‘too time-consuming’. Tshekeche said that because it uses PayPal as its online payment processing platform, PayPal was able to understand their business ‘just by looking at [their] transactions and growth’.
Since then, The Shoe Snob has ‘been growing at around 45 percent year-on-year’, with the PayPal Working Capital being ‘the backbone of that growth’.
Nevertheless, PayPal continues to forge ahead with its Working Capital program, launching it in new territories all the time. To date, it has provided alternative finance to over 170,000 firms in the U.K., U.S., Australia and Germany. Some of these have even opted to take out additional Working Capital cash advances to fund their business growth. However, due to its rapidly evolving partnership with online lending platform Konfío, PayPal is soon to launch its Working Capital program in Mexico, too. PayPal’s overall platform could also soon launch in Pakistan, too, with the nation’s Finance Minister Asad Umer insisting the Pakistani Government has worked hard to avail local industries of the PayPal platform for the coming months.