Seven years after the start of the credit crunch, many UK small businesses are still struggling to secure funding. According to a recent report from the Department of Business, Innovation & Skills, around a third of SMEs rely on retained earnings or the owner’s own finances rather than bank or equity funding. This means many find it very difficult to finance their present needs or future growth. And the problem is acute for smaller, online businesses.
The Government has put pressure on banks to lend to more businesses in order to address the challenges for small firms. So it’s interesting news to hear that PayPal is entering the market by offering working capital to existing small business customers.
An alternative source of business funding
The eBay-owned online payments firm is launching the PayPal Working Capital fund this autumn as an alternative source of funding to traditional bank loans and other lending services.
Later this year, PayPal’s business customers, including those on its eBay platform, can secure interest-free merchant cash advances against their future sales in exchange for a single fee.
PayPal claims that it will be able to offer faster loan approvals for customers because the company can draw on their existing sales history. Funds will be available around five minutes after application.
Repayments will be taken as a percentage of new sales – meaning that users will not be forced to eat into reserves if they are struggling. PayPal will not charge interest or late fees, and will make no external credit checks. A fixed fee will be charged as the customer signs up to the working capital programme.
A similar loans programme in America launched last year, and the PayPal Working Capital programme has provided $140 million in cash advances to SMEs.
How does it work?
- Funding in minutes – PayPal can approve an advance based on a business user’s PayPal sales history. You complete a quick online application and if you’re approved you’ll receive the funds within a few minutes
- Pay when you get paid – PayPal Working Capital allows a business to repay the advance with a share of its PayPal sales. If you have a day without any PayPal sales – you don’t have to repay anything that day
- No credit check – If you’re approved you’ll receive a merchant cash advance against future sales. It is not a loan – so no credit checks are needed and it doesn’t impact on your business or personal credit record. There’s a single, fixed fee that is displayed on screen before you sign up. There are no interest charges or late payment fees
PayPal Working Capital will start offering merchant cash advances to selected PayPal UK customers this autumn, with plans to offer the product to a wider range of merchants in 2015.
To keep informed of the launch of the PayPal Working Capital click here.