PayPal small business financing scheme advances £400 million in working capital

Since the digital payments pioneer launched PayPal Working Capital in 2014, over 22,000 business owners have secured much needed funding across a variety of industries and sectors. This new milestone marks a 116% increase in total cash advances in the last year.

Following the credit crunch, businesses have struggled to access financing from traditional providers. The National Audit Office estimates the current small business funding gap – the difference between the funding required by SMEs and the funding available – could range from £6 billion to £39 billion.[i] In particular, younger, smaller and online businesses with less conventional business models or established sales histories can struggle to fit traditional lending criteria.

Mark Brant, Managing Director at PayPal UK, explains, “PayPal made its name pioneering e-commerce, making it possible for businesses to grow their sales and reach millions more customers online. In the years that followed the credit crunch, we saw the impact it was having on our small business customers, many of whom were struggling. We saw an opportunity for us to help and set about making PayPal Working Capital a reality.”

New research from PayPal also suggests the challenges around small business funding have been compounded by recent bank branch closures across Great Britain. A third of all PayPal Working Capital cash advances have been provided to small businesses based in areas that have lost 50 or more bank branches in the last four years.[ii]

Mark adds, “Technology companies like PayPal are finding new ways to serve customers where the products and services of the past are coming up short. Of course, banks will continue to play a pivotal role in small business funding, but we need to collaborate more to make financial services work better for small businesses. They’re the lynchpin of the British economy. With uncertain times ahead, it’s even more important we innovate and equip small businesses with the tools they need to succeed.”

PayPal uses technology and its extensive data to bypass the lengthy application process of traditional business finance, and instead offer a faster, digital alternative for small businesses. PayPal Working Capital provides businesses with a cash advance of up to £100,000 on their future sales. As PayPal knows the business, there is no external credit check and funding can be approved and issued within minutes. Repayments are applied automatically as a fixed percentage of a business’ PayPal takings, which gives them flexibility to pay back only when they’re making sales.[iii] There are no interest charges or late payment fees.

Mel Thomsett set up her small business after her son was diagnosed with autism and sensory processing disorder. The Sensory Smart Store specialises in seamless clothing for people with sensory or sensitivity issues. Mel explains how her first PayPal Working Capital cash advance helped her in 2016: “When I first heard about PayPal Working Capital, I thought it was too good to be true. It was easy to apply because we’ve used PayPal since our first payment in 2009 and they have our entire trading history, so the decision was almost instant.”

Sensory Smart Store’s first PayPal Working Capital advance enabled them to invest in storage, packing and office space, or the ‘Shedquarters’ as Mel calls it. The second and third advances have been used to purchase additional lines of stock, both of which have led to greater profit for the business.

“PayPal Working Capital has enabled me to make some solid business decisions and get funding easily and quickly. It’s completely tied to the success of the business,” explains Mel. “If our sales are mildly successful, we pay back PayPal at a steady pace; if they’re wildly successful, we pay back faster. It really supports the spirit of opportunity and entrepreneurialism that small businesses have.”