On the back of research showing there were 1,000 bank branch closures in 2015 and 2016, PayPal has seen regional borrowing through its Working Capital offering grow in hard hit areas.
Since setting up Working Capital in 2014, PayPal has provided in excess of £400m to British small businesses, with 116 per cent growth reported in the last year.
While reluctant to call it “lending”, the “advances” of money to small and medium-sized businesses (SMEs) is available as long as the company has been trading with PayPal for a minimum of three months and has processed sales of more than £12,000 in the last year.
No external credit check is required because of the historical PayPal trading history, and repayments are applied automatically as a fixed percentage of a company’s PayPal takings.
Speaking exclusively to Real Business, PayPal Working Capital director Norah Coelho said the maximum cash advance has grown from £20,000, through £60,000, to its current level of £100,000.
In seeing PayPal Working Capital interest grow alongside other macro trends such as bank branch closures and the move towards digital finance management, Coelho added: “We know that business owners sometimes want to apply for business finance in the evening, or maybe it’s a hobby business so an application is made on a Sunday. Those are times you can’t apply for a traditional bank loan.”
House of Party is one particular family-owned business which has used PayPal Working Capital. Rapid growth meant the business needed access to cash to finance stock purchases. Andy Hall, founder of the business, commented: “We were growing at 110 per cent, but access to cash becomes your stopping point. We could sell what we had, but the problem was having the money to get the stock into the building in the first place.” Hall and his business have now used Working Capital 11 times, on each occasion taking a larger advance as the business and its needs grew. The latest advance was for £60,000.
PayPal has carried out specific research of bank branch closures, finding a third of all Working Capital advances have been provided to small businesses based in areas that have lost 50 or more bank branches in the last four years.
Coelho indicated cities such as Birmingham, Sheffield and Manchester have been particularly hit by bank branch closures, but also touched on the impact rural areas – where the volume of closures isn’t necessarily as high but is equally damaging.
While Working Capital has primarily been for the use of small business, often those which are after amounts of money of little interest to high street banks, the growth of the maximum advancement (£100,000) has taken PayPal further towards the “m” in SMEs – medium-sized businesses.
Coelho did not confirm that Working Capital has plans to increase the £100,000 ceiling further, but did say PayPal continues to listen to customer demand – feedback which first saw the £20,000 figure grow. She also mentioned the possibility of acknowledging offline sales when advancing decision are made, providing more of an opportunity to companies which do sole rely on ecommerce.
To date, 22,000 small businesses in Britain have used PayPal Working Capital, and Coelho expects this figure to grow as companies continue to engage with digital alternatives to high street banking.
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