July 12, 2016
By Bob Coleman
Editor, SBA Hot Topic Tuesday
SBA Hot Topic Tuesday — PayPal Tops $2 Billion in Small Business Lending
Your competition offers a five minute application, an immediate decision, and funds deposited into the small business checking account the next day.
Most of you know, I’ve borrowed money from PayPal’s working capital program in the past.
This is easy stuff.
You click on the working capital tab and your business name, address and phone number automatically populates the form.
You are now asked the following questions:
- Federal Tax ID #, or social security number
- Year business established (drop down menu)
- Business type (drop down menu, e.g. sole prop, partnership etc)
- Industry (drop down menu)
- Purpose of loan (choose purchase inventory, purchase equipment, fund existing operations, expand operation, marketing, or other business purpose)
Check the box that you certify loan proceeds will be used for business and not personal purposes and you are directed to a page that required information from an “authorized representative.” Name, address, title, date of birth and social security number. Two more certifying boxes to be checked and you get your offer in less than 30 seconds.
Choose the amount you wish to borrow from $1,000 to your maximum loan amount, choose the repayment percentage from future PayPal sales (10%, 15%, 20%, 25% or 30%).
PayPal charges a flat loan fee based on the amount, repayment percentage. Based on your sales, Paypal offers an estimated repayment term.
You confirm the loan amount and fee, and you receive an immediate notification the money is in your PayPal account.
You may then withdraw the account, and it will be in your account the next day, usually the same day.
On a previous loan, I estimated the APR to be @ 15%. Not bad for an immediate funding, with, get this, no personal guarantee!
PayPal Working Capital platform has logged $2 billion in originations and served more than 90,000 merchants across the globe since its inception three years ago.
In an interview reported by PYMNTS’ Karen Webster, Paypal’s GM of Business Fiancing, Darrell Esch noted that the maximum funding limits have been increased to 18 percent of the firm’s annual PayPal processing volume, or $97,000 in the U.S., with an eye on further boosting those ceilings on the heels of burgeoning demand. This is up from $20,000 or, alternatively, 8 percent of annual PayPal volume and stems from what he termed PayPal’s core competencies in risk modeling and data analytics to help establish creditworthiness. Past history with the firm, tied to sales, is a determining factor rather than the snapshot of a credit score.
PayPal “members” — those who have been with the payments firm via a business or Premier account for at least 90 days — are eligible to apply for a loan. Repayment is tied to a percentage of the borrower’s daily sales, taking less, for example, in the event that sales are slow and more in headier times. This, Esch said, blunts PayPal’s risk of loan losses, which he says “are in line with expectations.”
As for the typical borrower that the firm sees, the range extends broadly in terms of top line, with the firm that does anywhere from $100,000 to $1 million in sales annually, running the gamut from retail, especially clothing, to electronics.
Esch noted that the firms that typically sign up for the working capital loans are ones that have been with PayPal for several years, and the process results in a sticky relationship. The ability to get loans in order to get the right inventory in place then leads to repeat business, as Esch estimated 90 percent of those customers procuring short-term working capital loans return to PayPal for subsequent loans. The financial relationship between the lender and borrower also helps cut down on merchant attrition from PayPal in general, he added.