PayPal cash advances to UK SMEs reach £625m

Alternative loans

Over 30,000 UK businesses have used PayPal Working Capital. Most cash advances were issued outside normal banking hours.

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PayPal’s funding service for small and medium businesses is growing rapidly in the UK. So far, UK businesses have secured cash advances worth £625m from PayPal Working Capital. This represents a 56% increase since June 2017, when Paypal’s service hit the £400m milestone.

Norah Coelho, business finance director at PayPal UK, said UK small businesses are still struggling to raise funds through 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 bridge this funding gap. This obviously fills a real need, as since launch PayPal has advanced £625m to over 30,000 UK businesses “, she said.

According to Coelho, these companies are usually online retailers ranging from motorcycle sellers to comic book stores. What they have in common is a need for quick access to cash and an existing relationship with PayPal. Eligible businesses must process at least £9,000 in sales through PayPal each year.

The California-based payments giant launched PayPal Working Capital in Britain in 2014. PayPal provides cash advances to small businesses usually in minutes by using technology to sift through large amounts of data.

Instead of interest, PayPal collects fixed fees and guarantees that its service has no hidden fees. For a business getting a cash advance of £10,000, the flat fee would be around £500.

Businesses can get cash advances of up to 25% 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% of annual sales. We have already grown considerably since then. »

PayPal automatically deducts refunds when businesses make sales. If the business has no sales, it does not have to make immediate repayments, but the business must repay at least 10% of its total cash advance every 90 days. Coelho does not disclose the number of PayPal customers who are struggling with refunds, but says PayPal carefully screens customers to minimize defaults.

Data from PayPal shows that there is a huge demand for financial services outside normal bank branch opening hours. In addition, many banks have significantly reduced their branch network in recent years, as a large part of banking is now done digitally. This has created an opening for PayPal and its competitors to provide alternative financing to SMEs.

“Banks will always play an important role in funding businesses, but we found that over 70% of PayPal’s working capital was issued outside of traditional UK bank opening hours. We’ve replaced the time-consuming process of in-branch application for traditional business financing through a fast online alternative for small business PayPal customers,” Coelho said.

Globally, PayPal Working Capital has issued $5bn (£3.6bn) in cash advances since 2014. The company does not disclose whether the cash advance business is still profitable .

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