PayPal to Give Small Businesses Access to Working Capital in Minutes The online payments giant is getting into the finance market, providing access to credit based entirely on sales history – no credit check required.

By Catherine Clifford

Opinions expressed by Entrepreneur contributors are their own.


Online payments company PayPal launched a lending platform today whereby small-business owners can apply for access to capital and be approved in minutes.

Called PayPal Working Capital, the funding tool allows business owners to pay back their loans based on a fixed percentage of sales. For example, if you opt to pay back your loan at a 10 percent rate, and you bring in $500 in total sales one day, $50 goes toward paying off your loan. If you bring in $5,000 in total sales the next day, then $500 goes toward repaying the loan. If you make zero sales on a particular day, you don't make any payments on your loan.

The other unique aspect of the PayPal capital access product is that borrowers pay a single fixed fee for the loan. The faster a business owner opts to repay the loan, the smaller the fee. Many loan products have multiple, hidden fees associated with late payments, initiation, processing and even early termination fees. The PayPal loan product prides itself on being exceptionally transparent about the entire cost of the loan up front.

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Businesses can borrow between $1,000 and $20,000, up to a maximum of 8 percent of the annual revenue of the business. PayPal has surveyed its small-business clients and many have complained of being unable to access small amounts of capital at reasonable rates.

"In talking to merchants, a lot of them are very capital constrained," says Brian Grech, who is in charge of risk management for small-business products at PayPal. "In a lot of cases, their next best option would be a personal credit card or a very high-priced merchant cash advance and we expect to displace those overwhelmingly [with the new loan product]."

Grech says most PayPal merchants need access to these small amounts of affordable capital to buy hard goods inventory, to hire seasonal employees and for improvement of the company infrastructure and website.

PayPal to Give Small Businesses Access to Working Capital in Minutes
Image credit: PayPal.

San Jose, Calif.-based PayPal has selected 90,000 business owners that use its payment processing services to be part of the first class of PayPal Working Capital customers. Those businesses PayPal has selected to be part of its first round of loans made under the program earn between $20,000 and several million dollars in annual sales across a variety of industries.

Selected PayPal customers will be informed they can participate in the loan program either by phone, email, direct mail or through an account notification. Many of the businesses invited to participate in the first round of the lending program have been using PayPal's services for more than a year, although some have been with the service for less time. PayPal is offering the loans based on sales history, therefore the longer a business has been on PayPal, the more data PayPal can draw from to make an informed credit decision.

Loan approval decisions are made exclusively from sales data; no credit check is necessary. Approved borrowers can potentially receive funds from PayPal within minutes.

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"This is one of the places we have a great competitive advantage," says Darrell Esch, vice president of small-business lending at PayPal. Despite the speed, Esch says PayPal does perform a responsible amount of due diligence. "It is certainly not on the fly. It is beautifully simple for the merchant, the borrower, but it is based on data that we have seen and observed over time and in some cases over several years."

This current loan offering going out to the first 90,000 small-business owners will expire at the end of the year, but PayPal expects to launch a larger version of the program in 2014, after reviewing the successes and tribulations of the preliminary round of the lending program.

PayPal itself cannot legally make the loans directly to merchants, therefore it is collaborating with the Salt Lake City, Utah-based lender WebBank.

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Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

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