Over 30,000 British companies have used PayPal Working Capital. Most of the cash advances were issued outside normal bank opening hours.
PayPal’s funding service for small and medium-sized enterprises is growing rapidly in the UK. As of now, British businesses have secured £625m worth of cash advances from PayPal Working Capital. This represents a 56 per cent increase since June 2017 when Paypal’s service hit the £400 million milestone.
Norah Coelho, director of business financing at PayPal UK, said that small British businesses are still struggling to raise funds via traditional means – almost a decade after the financial crisis clogged up funding channels.
“We launched PayPal Working Capital in the UK in 2014 to help fill this funding gap. It’s obviously meeting a real need, as since the launch PayPal has advanced £625m to more than 30,000 British businesses,” she said.
According to Coelho, these businesses are usually online retailers ranging from motorcycle sellers to comic book stores. What they have in common is a need to access cash quickly and an existing relationship with PayPal. The eligible companies need to process at least £9,000 in sales through PayPal every year.
The California-based payments giant launched PayPal Working Capital in Britain in 2014. PayPal issues cash advances to small businesses typically within minutes using technology to skim through vast amounts of data.
Instead of interest, PayPal collects one fixed fee and assures that its service has no hidden fees. For a company that gets a £10,000 cash advance, the fixed fee would be about £500.
Businesses can get cash advances of up to 25 per cent of their annual sales volume on PayPal. The maximum amount is now £100,000 but it could increase in the future, Coelho hinted.
“When we started three and a half years ago the maximum cash advance was £20,000 or 8 per cent of annual sales. We have already expanded significantly since then.”
PayPal deducts repayments automatically when the companies make sales. If the company has no sales, it doesn't have to make any immediate repayments, but the company must pay at least 10 per cent of their total cash advance back every 90 days. Coelho doesn’t disclose how many of PayPal's customers struggle with repayments but assures that PayPal screens the customers thoroughly to minimise defaults.
The PayPal data shows that there is a huge demand for financial services outside of usual bank branch hours. In addition, many banks have shrunk their branch network radically in recent years as much of the banking is now done digitally. This has created an opening for PayPal and its competitors to provide alternative financing to SMEs.
“The banks will always play an important role in business financing, but we’ve found that over 70 per cent of PayPal Working Capital funding was issued outside traditional UK bank opening hours. We’ve replaced the lengthy in-branch application process for traditional business finance with a fast, online alternative for PayPal’s small business customers,” said Coelho.
Globally, PayPal Working Capital has issued $5bn (£3.6bn) worth of cash advances since 2014. The company doesn’t reveal whether the cash advance business is yet profitable.