PayPal believes its Working Capital facility will cement its relationships with its small-business customers, as Adam Aiken reports.
From being simply a handy eBay tool, PayPal is a brand that has significantly expanded its offerings in recent years.
Its Working Capital small-business finance facility is one example of its diversification, and 14,000 UK businesses have benefited from financing to the tune of more than £185m since the product was launched in late 2014.
Globally, it has approved cash advances worth more than $2bn since it was set up in the US in 2013, with more than 90,000 businesses in the UK, the US and Australia using the facility.
Its popularity stems in part from its ease of use but also because it has helped plug the lending hole created when the mainstream banks tightened their belts following the 2008 financial meltdown.
“PayPal has been around for about 18 years now,” says Nicola Longfield, the company’s UK SME director.
“At the beginning it was related to eBay, but it was always about helping buyers and sellers and small businesses to be able to pay and transact.
“It evolved from there [and] we now do much more than that. For small businesses in particular, we are trying to build lots of solutions to meet their needs.”
She adds: “Speaking to small businesses on a daily basis, one of the complaints we heard from them was about getting capital – not necessarily for growth but just actually to run their businesses. It was something they had really struggled with since the financial crisis after 2008.
“A lot of small businesses had had relationships with local banks, but their access to funds really dried up.
“Obviously, small businesses still need to get through the peaks and troughs of cashflow, and to buy equipment or seasonal inventory.
“We were already seeing a lot of information about these small businesses just through processing their payments. We could make a decision [on financing] really quickly because we already had visibility on how their business was doing through their PayPal sales, and that’s where PayPal Working Capital came from.”
The scheme works by giving an advance of up to £60,000 to a small business, subject to a set-up fee. The business then makes repayments based on a fixed percentage of its daily Paypal sales.
As business picks up, so the repayments increase – but if the business suffers a period of slow sales, the repayments fall accordingly.
There are no external credit checks on businesses that apply for Working Capital. PayPal uses its own knowledge of businesses that it already has relations with.
“There are a number of requirements surrounding how long businesses have been with us, because if we are going to be able to make a decision quickly without seeing a business plan or having a three-hour meeting and personal guarantees, we have to be confident we know their business,” says Ms Longfield.
“They can choose what percentage they are going to repay from their daily PayPal sales. It’s normally between 15% and 20% of their sales, and that automatically gets taken out of their PayPal account.
“It’s based on sales as opposed to being tied to some fixed amount, so if you have a day when the servers go down and they haven’t done any business, they don’t make a repayment. They know what they have signed up to, and they don’t have to worry about additional fees. That is the flexibility that we heard those small businesses needed.”
Ms Longfield hopes Working Capital will help PayPal cement its long-term relationships with its small-business customers.
She says: “Our plan is quite simple – it’s very much about speaking to our customers and meeting their needs. The outcome of that is it deepens the relationship.
“Of course they have relationships with other partners, but whatever our competitors do, we hope we’ll maintain our close relationships with them.
“The other thing worth bearing in mind is we helped many of these businesses get online in the first place and so I think that – combined with a quick and easier way of applying for finance – will stand us in good stead.”