Paypal launches a new small business loan
In our current Great Recession (perhaps more accurately named ‘Depression’) tradition banks seem more stubborn than ever to offer loans to small businesses. Small business investment can be had for neither love nor money! PayPal have recently rolled out a new small business loan initiative, but this may not be the gleaming financial remedy it may first seem.
PayPal (and its parent company eBay) are offering competitive loans to 90,000 of its existing merchants. The scheme, known as PayPal Working Capital, offers the 90,000 selected merchants the facility of borrowing up to 8% of their PayPal volume, to a maximum of $20,000. The loan attracts a set fee, and is paid back by deducting 10%-15% of incoming receipts. More funds may be borrowed as the initial loan is repaid.
This may appear to be good news for small businesses desperate for investment in order to expand. However, the scheme is only open to the selected 90,000 merchants, merchants whom PayPal already knows enjoy good turn-over and business growth. This may simply be another example of financial service providers only lending to businesses who don’t really need the investment.
For PayPal, the risks are obviously minimal. They broker all financial transactions anyway, so are best-placed to take their 10% before the remainder of receipts even hits the merchants’ accounts. For merchants, the loan is easily understood with a single fee payable over a set period.
This scheme is only open to businesses until the end of the year. However, after an evaluation period, PayPal plans to roll out the scheme throughout 2014.
Depending upon the success of this current pilot loan scheme, it is hoped that more merchants will be able to apply for funding following the 2014 launch. This has to be good news for small businesses. In our current harsh financial climate, a new source of business funding is always welcome.
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