The universe of alternative lending products available to small business owners keeps expanding.
Where banks have eased up on their commercial loans since the Great Recession, lenders like Kabbage, Lendio and Biz2Credit have stepped on the gas. Such financing companies are making loans, often within hours, though frequently with high interest rates, based on their ability to sort non-traditional data, such as checking account and vendor payment history.
Add to their number PayPal, which today announced that it too is getting more involved in the small business loan and credit financing world.
The online payment juggernaut is not only rebranding its consumer loan business to assist small business, it is expanding a pilot for working capital loans for small companies. Together, PayPal's Steve Allocca, general manager and vice president of credit, said during a lunch in New York today that PayPal hopes to bring credit to the center of its product offerings, and thereby help its small business customers grow sales.
"Empirically, customers with our credit products, both buyers and sellers, engage more and it drives volume," Alloca said.
The older product that's being rebranded is called Bill Me Later, which PayPal acquired in 2008. It's an on-the-fly credit granting product that started out helping PayPal customers purchase smaller items using credit online. The new product, which will be called PayPal Credit, can be integrated into a merchant's bricks-and-mortar sales operations and it can managed by consumers through an app.
The working capital loans, which can range from $1,000 to $60,000, are part of a pilot program called PayPal Working Capital, started last Sepetmber.
Ebay sellers, or businesses that use PayPal's merchant services, are elgibile for these working capital loans, as long as they gross $20,000 annually. PayPal will underwrite the loans, which are issued by Utah's WebBank. That decision is based on the information PayPal collects on the sellers' activity within the PayPal network.
Darrell Esch, general manager of small business lending at PayPal, said during the sit-down with reporters and analysts today that the loans can be approved and funded within minutes. The loans charge a fixed fee based on a sliding percentage of sales repaid daily. Esch said a repayment of 20 percent on the median loan amount, which he did not specify, would result in a 5.5 percent flat fee. Other alternative lenders tend to charge a periodic interest rate, which can be as high as 40 percent.
Since September, PayPal has funded 20,000 merchants with loans totalling $150 million. Merchants have used the loans primarily for inventory, Esch said. He would not comment on the default rate of the portfolio.
And in a bid to manage transaction expenses more carefully, Allocca said PayPal will purchase the $1 billion GE Capital portfolio that issues the Paypal-branded MasterCard, which has been around for several years.
"That's increasingly important to us as we aspire to go offline," Allocca said.