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3 Reasons Alternative Lending Might be Exactly What Your Business Needs

Compared to a traditional loan, alternative lending can provide much-needed funds fast, which can be critical during these challenging times.

Sponsored by PayPal


Life is unpredictable, a reality the pandemic has underscored for entrepreneurs. As Covid-19 severed supply chains and forced stores to close across the U.S., small-business owners faced plunging revenues and other unexpected challenges.

For business owners who have debt, the situation was particularly precarious. Traditional loans aren't built to accommodate system-wide disruptions, which "puts them in a really tight spot," says Norah Coelho, a senior director of Global Merchant Lending at PayPal. Thankfully, banks aren't the only place to turn to for capital.

That's where alternative lending comes in. Alternative lending refers to lending that takes place outside of traditional financial institutions. Compared to going through a traditional process, alternative lending happens online and is typically faster and easier to acquire.

Here, Coelho explains how PayPal's alternative lending program works and why it could be the right fit for your business.


PayPal Working Capital* allows businesses to borrow money more flexibly. In lieu of fixed terms, the loan amount is repaid as a percentage of a business' PayPal sales. If sales taper off, for whatever reason, you aren't tied to an unrealistic repayment amount.

Unlike traditional loans, which often come with a variety of interest charges and fees, including early prepayment penalties, business owners are charged a single, fixed fee, based on the information PayPal has on their business. The loan is repaid faster if business is booming, more slowly should it encounter unexpected obstacles.

"PayPal Working Capital flexes with the businesses' sales cycle," Coelho says, whether it's cyclical or seasonal. It also helps business owners manage through unexpected events, including health issues, family matters, or "any of the normal things that happen in a person's life." A minimum payment only needs to be made once every 90 days to stay in good standing. If a business is closed due to the owner's need to take care of family — PayPal Working Capital's flexibility allows the business to focus on what they need to focus on.

2. Convenience

When you're running a business, time is a scarce resource: Dropping everything to go to the bank and fill out a lengthy application isn't always a realistic option. (Nor, given our current reality, is it a particularly safe one.)

The entire process of accessing financing through PayPal takes place online. Because potential borrowers are already PayPal customers, the company is able to pre-populate most of the application information. Once you submit the application, you'll receive an answer instantaneously. Given the company's knowledge of an applicant's PayPal sales history, "we do a real-time assessment," Coelho says. "There is no checking of a credit bureau, no calculating cash flow or coverage ratios. We are able to make an immediate decision."

If approved, customers can evaluate the fixed fee, determine if they want to borrow the entire amount offered, and decide the percentage of each sale they'll commit to repaying the loan (this ranges from 10 percent to 30 percent). Should they accept the terms, the money will be deposited in their PayPal account immediately. Altogether, the entire process only takes around five to 10 minutes.

This speed and ease is important. "We hear from business owners who are busy from 9-to-5 selling, stocking, packing mailers with their products," Coelho says. "They may be parents taking care of children, they may have another full-time job." An intuitive, 24/7 online system means "a business owner who is a mom can apply for financing after the kids have been put to bed, or on a Sunday night when she has more bandwidth."

3. Access

Many small businesses face barriers when it comes to getting loans.

PayPal Working Capital takes a wealth of data into consideration, including the business's sales history with PayPal, rather than simply revenue or a business owner's credit score.

This was the case when PayPal Working Capital approved a loan for a small chain of bakeries in New York City, despite the business having gone through a difficult period. A traditional institution wouldn't have reached the same decision. PayPal, however, could see that the business had turned a corner. Sales were up; it was doing well.

As a result, the business owner was approved for financing through PayPal, enabling him to move his flagship bakery and eventually open additional locations and create an opportunity for his business to thrive.

Visit PayPal for more information on alternative lending options for your business.

*The lender for the PayPal Working Capital Loan Program in the United States is WebBank, Member FDIC.


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