PayPal Hits $1 Billion in Small Business Lending

PayPal Hits $1 Billion in Small Business Lending

Fintech giant lends $500m since May, indicating huge demand for alternative lending

30th October 2015

By David Kiriakidis

Upon hearing the name PayPal most people immediately connect the global fintech phenomenon with eBay purchases and niche retailers. But there's much more to the company that its money transfer platform.

On Tuesday 27 October, the San Jose-based tech giant revealed that in a little over 24 months, its lending arm has lent over $1 billion to small businesses in the US, Europe and Australia. He also announced that just in the last 5 months, PayPal Working Capital lent around $500 million and doubled its number of loans.

Launched just over 2 years ago, PayPal’s move into the world of business lending hasn’t received anywhere near as much attention as its other services, but this latest but if news makes it clear it's having an impact on the small business scene.

The rise of altfi

It’s a great example of the meteoric rise of altfi (or alternative finance) in recent years, and how small business owners, who may have previously struggled to find funding, now have an abundance of options to choose from.

PayPal uses it own system to access financial data on businesses, allowing the firm to make quick, informed decisions. This swift turnaround is a trait among many alternative lenders, saving small business owners from a potentially long application process, more common among traditional lenders.

PayPal's loans allow its borrowers to pay back a percentage of their sales. This business-friendly approach is becoming increasingly popular, with lenders such as Square, Liberis and Fleximize offering similar loan options. This growth of innovative new financing options has come from a seemingly still-fragile lending outlook among high street banks.

20% down on lending

Darrell Esch, PayPal’s Head of Business Lending, claimed: "Small businesses are still down 20% from the great recession, with many struggling to find access to capital from traditional bank loans.”

In response, in the UK alone the alternative lending market has grown in value from £267 million in 2012 to £1.74 billion in 2014; a growth of around 311%, and it doesn’t look like it'll slow down any time soon.

The flexible nature of these alternative options is one of the biggest appeals among small business owners, with lenders specialising in many different areas: from peer-to-peer lending and invoice trading, to crowdfunding and revenue-based lending, borrowers have never had more choice.