B2B Payments

Can PayPal Lead the SMB Lending Space?

PayPal announced the expansion of its SMB working capital program yesterday, a program that has already extended more than $150M to SMBs in the U.S. In addition to raising the borrowing limit to $60k, PayPal expanded the program to the U.K. and Australia. At its current rate, PayPal could quickly emerge to lead the SMB lending space.

The alternative lending space for small business just got a whole lot more interesting.

PayPal announced yesterday (July 30) that it’s expanding its working capital program for small business and taking it on the road. Launched in the U.S. on a small scale in September of 2013, PayPal has loaned more than $150 million to small businesses since that time. Borrowers are charged a flat fee that can vary based on the size of the loan and the repayment period. With this announcement, PayPal also raised the amount that it would lend to any one business from $20,000 to $60,000. The service is available in the U.S., U.K and Australia. At its current lending volume of $1 million a day, PayPal could quickly become one of the largest providers of working capital to small business.

PayPal’s SVP of Global Services, Gary Marino was quoted as saying, “We feel really good about our ability to lend.” Marino is more than a little familiar with what it takes to operate a lending business. He was the CEO and one of several co-Founders of Bill Me Later, a transactional consumer credit business acquired by PayPal in 2007. Today’s announcement also included a rebranding of Bill Me Later as PayPal Credit which is now available in Germany and the U.K.

According to PayPal’s website, repayment is automatic and deducted from each day that the business make sales on PayPal. Borrowers are able to choose the percentage to be deducted each day until the loan balance is paid in full. There is no fixed payback period and borrowers must continue to process sales thru PayPal until the loan is repaid in full. A case study on the PayPal Working Capital website tells the story of a computer parts business owner who was rejected by traditional lending outlets and applied for and received a $20k loan from PayPal to purchase inventory. The loan fee was $800. According to the testimonial, the SMB was able to increase his business by 40 percent in one month by having access to working capital to buy inventory that he could sell at a profit.

PayPal’s move into SMB lending comes at a time when the market for small business alternative lending products is becoming increasingly active. According to the SBA, small business represents 99.7 percent of U.S. firms and nearly two-thirds of new jobs created over the last 20 years. These businesses were hard hit during the financial crisis and players such as OnDeck Capital and Kabbage emerged to fill a big void as banks turned off the lending tap for all but the most qualified business borrowers. OnDeck has said that it has loaned nearly $1 billion since its founding seven years ago in 2007 and Kabbage has loaned $250 million since it launched three years ago. Square Capital added a SMB cash advance program last Spring that it claims has extended “tens of millions” of dollars to “thousands” of businesses.

Traditional banks are also beginning to show signs of getting back into the small businesses lending business. Wells Fargo announced in June of 2014 that it was setting aside $100 billion to lend to SMBs by 2018. BBVA Compass has partnered with OnDeck Capital to serve businesses that don’t fit their traditional borrower profile and JP Morgan Chase launched its “Mission Main Street” initiative in January of this year to serve local businesses in select markets that are in need of working capital.


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