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PayPal emerges as small-business financing source

Introducing PayPal Working Capital


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E-commerce has changed the way consumers buy goods and services, and now it might change the way small businesses borrow money and repay loans.

In September 2013 PayPal launched PayPal Working Capital, a loan source for small businesses that currently use PayPal for online payments. The borrower can apply for a loan without undergoing a credit check because PayPal already knows the company’s sales history.

Some small business owners are happy to skip the forms and the wait.

“I think it took five or ten minutes from the application to having money in my account,” says Scott Bennett, owner of the Denver-based furniture manufacturer Housefish. “It was pretty easy to get.”

Instead of interest, there is a fee. The borrower repays the loan over time, from a percentage of sales every day. The borrower can choose the percentage.

“Payments change with the company’s sales so that businesses with irregular revenue cycles can still comfortably seize new business opportunities and hire seasonal help, increase inventory for a busy season, aid cash flow, purchase new equipment, ramp up marketing activities or even open a new location,” says Brian Grech, director of U.S. portfolio growth and optimization for small business lending at PayPal.

The example PayPal Working Capital offers on its website is a business with $100,000 in annual sales that takes out a loan of $8,000 for a fee of $445, then pays 10 percent of each day’s sales as a loan payment.

“The first rule of business is don’t run out of money,” says Michael Bower, CEO of Sellry, an e-commerce company that is moving its operations from California to Fort Collins. “When I started my company, I shuffled things around with credit cards, which is never fun.” He is using the PayPal loan to tackle bigger projects, including scaling operations and hiring more employees.

PayPal’s lender partner is WebBank in Salt Lake City, and the loan limit is $85,000. Business owners cannot use the account for personal purchases and must provide backup funds such as debit. Most businesses take about a year to pay back the loan.

Grech says in the U.S., more than 40,000 businesses have used PayPal Working Capital cb

Other lenders

For more traditional sources of capital, banks have these offers:

U.S. Bank offers businesses lines of credit that range from $10,000 to $2 million, using collateral such as assets or real estate.

Alpine Bank offers the Ready Reserve Line of Credit tied to a business checking account, with credit lines of $1,000 to $10,000.

Vectra Bank offers what it calls Business AmaZing credit cards, with APRs starting at 10.25 percent.

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