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PayPal cash advances to UK SMEs reach £625m – but is it really lending?

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PayPal has provided UK SMEs with £225m in cash advances since June 2017, as the payment processor claims its alternative finance model is filling an entrepreneurial funding gap.

The amount of finance “advanced” by PayPal – the platform is reluctant to call it lending – to UK SMEs has risen from £400m in June 2017 to £625m today. 

Overall, 30,000 British SME owners have accessed a share of the £3.6bn PayPal has financed globally since 2014 through its Working Capital advances.

As bank branch closures continue to threaten access to finance for many small UK businesses, flexibility continues to be central to PayPal’s Working Capital offering. Some 70 per cent of cash advances issued in the past year were all made online outside traditional bank branch hours.

At an increase of 56 per cent over the past year, PayPal remains confident its flexible business finance product is able to “bridge the funding gap” for small firms. But how does it stand up to traditional lending?

How it works

PayPal’s digital alternative uses its customer data to bypass lengthy application processes and provide small business owners with cash advances of up to £100,000.

Repayments are applied automatically as a fixed percentage of a firm’s PayPal takings, aligning payments with sales and cash flow. PayPal charges a one-off fee up-front and no late payment charges. 

When asked by Real Business if PayPal would extend the ceiling, the platform said it had no plans to, but consumer demand had seen the initial limit of £20,000 escalate.

Commenting on PayPal’s latest landmark Norah Coelho, director of business financing at PayPal UK, said the SME funding landscape was still suffering from a credit crunch hangover.

We launched PayPal Working Capital in the UK in 2014 to help fill this funding gap. It’s obviously meeting a real need, as since the launch PayPal has advanced £625m to more than 30,000 British businesses,” Coelho said.

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He added: “As PayPal knows the applicant’s business, we typically approve and issue a cash advance in minutes. The business owner can spend the time saved on what really matters: running their business.”

One UK SME owner tapping into PayPal’s alternative funding model for business growth is Aaron Flanagan, founder of Belfast’s collectable comic book store Comic Book Guys. Flanagan turned to Working Capital after struggling to generate the cash flow needed to invest in stock. 

“Unless we got a lot more stock and gave the store a re-vamp, we couldn’t grow any further,” he explained.

“We needed funds to do that, but our cash was tied up with the stock we already had. It’s one of the biggest challenges for any growing small business: you can’t buy your next comic with an old comic.” 

Put off by the high interest rates and lengthy applications of bank finance, Flanagan used a PayPal cash advance to invest in a new shop front, interior and a stock of 135,000 comics.

“We’ve seen the number of people visiting the shop increase, and sales and awareness are up. Comic Book Guys has become a bit of a destination store,” he added.

New to business finance? Take a look at the pros and cons of five SME funding options

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