Norah Coelho of PayPal Q&A: ‘Getting access to finance is incredibly important’

PayPal Working Capital has seen a 60 per cent spike in UK small business lending year-on-year. Norah Coelho tells Small Business how it works.

Since 2014, PayPal has provided more than £1 billion in financing to the UK’s small businesses through its Working Capital lending programme.

So far, 37,000 UK small businesses have taken PayPal up on its forward funding offer.

Indeed, SME lending was up 60 per cent year-on-year.

PayPal-registered businesses can borrow anything from £1,000 to £150,000 as a cash advance from the internet payments giant. Entrepreneurs can borrow up to 30 per cent of their annual PayPal sales.

PayPal says its growth in small business lending comes at a time when traditional bank lending to small businesses is flat.

Borrowers pay PayPal a fixed fee for the facility – which varies from business to business – and repayments are applied automatically as a fixed percentage of a company’s PayPal takings, giving businesses flexibility to pay back only when they’re making sales. No sale, no repayment.

Norah Coelho, director of business financing at PayPal UK, explains to Small Business why entrepreneurs appreciate the speed and flexibility of decision making, how it works, and why it’s ideal for those running hobby businesses or working part-time.

Where did the idea of Working Capital come from?

We could see there was a need from our customers to grow their businesses, whether it meant launching a new product line, investing in staff, speeding up fulfilment, or opening up new fulfilment channels.

Because of our data science and the size of our merchant base and capital, we could bring together a new experience, enabling business who process their sales through our platform to apply for and get a fast decision taking out a merchant cash advance.

PayPal launched Working Capital in the USA back in October 2013. The origins of it came from linking our heritage in data science with our merchant customer base. Combining both offers tremendous opportunity to enable customers with financing.

We launched PayPal Working Capital four-and-a-half years ago in Britain, and it was exciting to be launching a new line of business with a fairly new type of financing in the UK.

If I need a loan, why wouldn’t I visit my bank manager?

PayPal Working Capital isn’t a loan, it’s a merchant cash advance. The business is selling a proportion of its future sales to PayPal upfront in exchange for cash to invest in their business or otherwise grow.

Accessibility and flexibility has a lot of appeal to business owners who are stretched in so many directions to keep their businesses up and running.

“PayPal Working Capital isn’t a loan, it’s a merchant cash advance”

First, they can apply 24/7. The reality of life as a small business owner is that many business owners spend their days out on the road with sales calls. They’ve got a host of business responsibilities; some may be working part-time to fit in around their family, others may have a separate full-time job and may be running a business as a hobby. The ability to apply when they’ve put children to bed or at the weekends is a big distinction compared to making an appointment to see your bank manager during the week.

The application is speedy because we know the business. These businesses are processing their payments through us either online or through a card reader, and we can use that information and that history to create a brilliant customer experience.

And because we have millions of small businesses processing their transactions, we know a lot about them. Customers always ask, ‘You know all about me, so why are you asking all these questions?’

We have a really simple application experience. The application form is largely pre-populated and, once you’ve pressed send, you get a decision in a matter of moments.

Rather than having to scramble together documents, go through a long decision-making process which leaves things pending, you get to see how much finance you’re eligible for. Then they can get on with making other business decisions.

It’s short and very simple and concise and you get a very swift response once we’ve received your application. Funds are swept into their balance faster than they can toggle over to check it.

All of that makes for an appealing way of raising finance compared to others.

What is the minimum you are looking for in a business that’s applying for funding?

You need to have had a business account with PayPal for at least three months and a minimum of £9,000 of sales over that time period. That would have given us enough information to give us an idea of how you’re trading.

“You need to have had a business account with PayPal for at least three months and a minimum of £9,000 of sales over that time period”

What happens if I still haven’t cleared my borrowing by the end of my agreed repayment period?

The business needs to make a minimum 10 per cent repayment of total amount in any 90-day period. For all customers, that’s a modest amount. When they take out the cash advance, we can tell customer how long we would expect them to take to repay, and they can model a couple of scenarios before they take out the finance.

The sales-based cash advance is very attractive for some small businesses, where forecasting cash flow can be a real challenge. Business owners tell us they really appreciate that flexibility.

And because we’re taking a portion of every payment of their PayPal account with us, they now that everything that’s left is theirs.

Wouldn’t it be easier for me just to use my credit card?

Not everybody has access to credit cards. A credit card balance needs to be repaid at the end of each month, and the application process for a credit card is much lengthier.

Many of our customers appreciate that repayment happens day by day or sale by sale. It’s more flexible and takes place in smaller amounts rather than one big repayment at the end of each month.

Some business find themselves refused when they apply for PayPal Working Capital again. And they’re never given a reason why, they complain.

We’re constantly monitoring the sales behaviour of our customers and occasionally a business is generating a lot less by way of sales. We evaluate that when something has changed in their financial profile.

But the vast majority of customers come back again and again and we have made some enhancements over the life of this business to enhance this offer to the customer.

What would you say to a small business owner putting their fears at ease?

PayPal Working Capital is a fast, flexible, fair form of finance. What we want is to get our customers to get access to finance, expand their operations, optimise their websites for mobile, create new shopping carts or refit their storefronts.

Getting access to that finance, even in increments of £1,000, is incredibly important.

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