Online merchants have collectively borrowed and repaid tens of millions of dollars from eBay’s PayPal unit, which now plans to extend its merchant-financing program to more businesses in the U.S. and abroad.
Taking a hint from a startup called Kabbage which recognized eBay and online sellers were good candidates for working capital loans, marketplaces began rolling out similar services themselves, including Amazon.com. eBay’s PayPal unit rolled out pilot programs last year and now says it will extend the PayPal Working Capital product indefinitely.
Kabbage opened the door to such programs when it launched in 2009 by demonstrating lending risk could be minimized by analyzing data from the venues on which merchants sell and the payments services they use to process sales – including PayPal. Using data collected from eBay, Amazon, Etsy, social networking sites, shopping carts, shipping, and accounting programs helps Kabbage understand the merchant performance and risk. The company then purchases the seller’s future receivables, providing them with immediate funds and a repayment schedule.
PayPal launched the PayPal Working Capital pilot program last year, and in addition to extending eligibility to more U.S. businesses, it will launch similar offerings in additional countries. Over half of small-business borrowers reported using the PayPal loan to purchase inventory.
PayPal said applying for PayPal Working Capital, which is issued by the lender WebBank, “takes just minutes because it is based on each business’s sales history through PayPal.” Merchants were “overwhelmingly pleased with how PayPal Working Capital allows them to repay their loan balance using a share of their sales, with no fixed payment dates to remember and no monthly minimums,” PayPal said, and 90% of merchants who participated in the program would recommend PayPal Working Capital to other merchants.
On its website, PayPal calls it a “different kind of business loan”:
PayPal Working Capital is exclusively for select PayPal business customers, and is based on your PayPal sales history. There is a single, fixed fee that you’ll know before you sign up. NO periodic interest charges, penalty fees or any other fees, so you know what you’ll pay, down to the penny.
1) Repayment is simply a share of your PayPal sales that you choose. There are no due dates. You pay only after you have sales, and payments happen automatically.
2) On days when you don’t make sales, you pay nothing for that day.
3) When your balance is paid in full, you can re-apply for another loan.
In late 2012, 28% of EcommerceBytes readers surveyed said they would be likely to turn to PayPal if it offered loans with competitive rates and terms. Interestingly, 61% of respondents said they carried a balance on their credit card.