PayPal to Give Small Businesses Access to Working Capital in Minutes
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September 24, 2013
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Online payment company Pay Pal today launched a lending platform that allows small business owners to apply for access to capital and get approved in minutes.
Called PayPal working capital, the financing tool allows business owners to repay their loans based on a fixed percentage of sales. For example, if you choose to pay off your loan at a 10% rate and have total sales of $ 500 one day, $ 50 will go towards paying off your loan. If you bring in $ 5,000 in total sales the next day, $ 500 will go towards paying off the loan. If you don’t make a sale on a given day, you don’t make any payment on your loan.
The other unique aspect of the PayPal access to capital product is that borrowers pay a one-time fixed fee for the loan. The faster a business owner decides to pay off the loan, the lower the fees. Many loan products have multiple hidden fees associated with late payments, initiation, processing, and even early termination fees. The PayPal loan product prides itself on being exceptionally transparent about the total cost of the loan up front.
Businesses can borrow between $ 1,000 and $ 20,000, up to a maximum of 8% of the business’s annual income. PayPal has surveyed its small business customers and many have complained that they cannot access small amounts of capital at reasonable rates.
“Speaking to merchants, a lot of them are very capital-constrained,” says Brian Grech, small business product risk management manager at PayPal. “In many cases their second best option would be a personal credit card or a merchant cash advance at a very high price and we expect to move them en masse. [with the new loan product]. “
Grech says most PayPal merchants need access to these small, affordable amounts of capital to buy durable goods inventory, hire seasonal workers, and improve the company’s infrastructure and website.
Image credit: PayPal.
PayPal, based in San Jose, Calif., Has selected 90,000 business owners who use its payment processing services to be among the first class of PayPal Working Capital customers. The companies PayPal has selected to be part of its first round of program loans generate between $ 20,000 and several million in annual sales in various industries.
Selected PayPal customers will be notified that they can participate in the loaner program by phone, email, direct mail, or through an account notification. Many businesses invited to participate in the first cycle of the loan program have been using PayPal’s services for more than a year, although some have been using the service for less time. PayPal offers loans based on sales history. Therefore, the longer a business has been using PayPal, the more data PayPal can use to make an informed credit decision.
Loan approval decisions are made exclusively from sales data; no credit check is necessary. Approved borrowers can potentially receive funds from PayPal within minutes.
“This is one of the places where we have a great competitive advantage,” says Darrell Esch, vice president of small business loans at PayPal. Despite the speed, Esch says PayPal is doing responsible due diligence. “It’s definitely not on the fly. It’s beautifully simple for the trader, the borrower, but it’s based on data we’ve seen and observed over time and in some cases over several years. “
This current loan offer for the first 90,000 small business owners will expire at the end of the year, but PayPal plans to launch a larger version of the program in 2014, after reviewing the successes and tribulations of the preliminary round. of the loan. program.
PayPal itself cannot legally grant loans directly to merchants, which is why it is working with the Salt Lake City, Utah-based lender. Web banking.