PayPal UK to launch PayPal Working Capital

PayPal have announced that they will launch PayPal Working Capital in the UK this Autumn. Their stated aim is to help British businesses fund their future growth.

PayPal reference the Department of Business, Innovation & Skills (BIS) who reported that “SMEs suffer from long-standing challenges in accessing bank and equity finance.” They will join exisiting small business finance firms Ezbob, Iwoca, Fleximize and Kabbage in what’s rapidly becoming a crowded small business finance market.

PayPal Working Capital Pros and Cons

PayPal say that they bring three main advantages to the finance arena:

Funding in minutes

PayPal’s strong relationship with its business customers means they can approve an advance based on their PayPal sales history. This means the customer completes a quick online application – there’s no need to spend hours gathering information about their business. And PayPal can make a decision and provide the funds in minutes. This is similar to the more established companies mentioned above, however a PayPal disadvantage is that they have no visibility of a merchant’s Amazon or traditional bank payment sales which others do.

Pay when you get paid

Unlike traditional bank loans, PayPal Working Capital allows a business to repay the advance with a share of their PayPal sales. If they have a day without any PayPal sales that’s fine – they don’t repay anything that day. This is an advantage as other similar loan arrangements require regular payments regardless of your sales fluctuations.

No credit check

PayPal Working Capital is a merchant cash advance against future sales – it’s not a loan – so no credit checks are needed and the advance does not impact on the customer’s business or personal credit record. There is a single, fixed fee that is displayed to the customer before they sign up. There are no interest charges or late payment fees.

When will PayPal Working Capital roll out?

PayPal will start by offering cash advances to selected PayPal customers this autumn, with plans to offer the product to a wider range of merchants in 2015. It follows what PayPal call “a very successful launch of PayPal Working Capital in the United States”. Since its US launch in September, the PayPal Working Capital programme has provided US$140 million in cash advances to SMEs and according to The PayPal Working Capital Customer Satisfaction Survey conducted in February, 2014, 90% of participating businesses would recommend the programme to other business owners.

Is this a new idea?

Back in 2012 PayPal ran a trial program in the UK known as “PayPal Merchant Cash Advance“. As far as we know it didn’t have a particularly high take up rate by those customers invited to trial the program, however as it was a limited program it’s hard to compare with the new PayPal Working Capital loans.

Is PayPal Working Capital needed?

Cameron McLean, Managing Director of PayPal UK, explains “Small businesses are the lifeblood of the British economy. But seven years after the start of the credit crunch, many of them are still struggling to get funding. According to the British government, around a third of SMEs rely on retained earnings or the owner’s own finances rather than bank or equity funding. This means that many find it very difficult to finance their present needs or future growth. And the problem is acute for smaller, online businesses“.

The big question of course is, if you need finance, would you be better off borrowing from PayPal or from one of the alternative finance companies out there? Our advice would be to check out all of your options and pick the provider that you’re comfortable with.

If a large proportion of your sales are paid on Amazon, card payments or bank transfer then you may be better off looking at a company which will take all of your sales into account when assessing how much they can lend to you. However if you think you may have peaks and troughs in sales then the PayPal Working Capital option may look a much more attractive proposition.