PayPal’s Big Move in Small Business Financing: Will It Help You?

PayPal’s Big Move in Small Business Financing: Will It Help You?

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Looking for fast financing for your small business? PayPal has announced it has acquired Swift Capital, and for some small business owners this could mean access to faster loans at attractive terms. But will they be right for your business?

PayPal currently offers short-term loans to small businesses that process payments through its payment platform. To qualify, small business must have a PayPal Business or Premier account for at least three months and have at least $15,000 in sales if you are a Business member, or $20,000 in annual sales if you are a Premier member. Businesses can typically borrow up to 25% of the sales processed through PayPal in the past 12 months to a maximum of $97,000 (for the first loan). PayPal charges a flat fee, not interest, but it often works out to an equivalent of about 25% APR, which is much less expensive than other types of fast financing options (see below).

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More than 115,000 small business owners have received more than $3 billion in funding through this program.

Swift Capital is a provider of short-term loans based primarily on revenue. Businesses may qualify if they have been in business for one year, provided they have at least $100,000 in annual revenue, no active bankruptcies, no liens or judgments above $150,000, and no existing advances above $300,000.

The cost of a Swift Capital advance can be more expensive than traditional loan products, but on par with alternative lenders. The rates on advances depend on underwriting and can vary by business, but you can get a personalized quote before you commit.

In recent years, companies like PayPal that work with small business owners on a regular basis have increasingly been entering the small business lending space by offering fast, short-term loans at a cost that’s lower than similar options. Amazon Lending and Square Capital also offer similar programs.

Will This Help Your Business?

Fast financing, regardless of the source, can be a godsend for a business that’s having trouble getting financing from a traditional lender, or for a business with a financial crisis or opportunity. The average small business owner spends 26 hours looking for financing, according to the Federal Reserve.

While it’s easy to accept a financing option from PayPal or another online lender, there may be lower cost options available such as a bank loan, SBA loan or even some business credit cards.

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“I applaud this move by PayPal and am interested to see how big its lending arm can get. Entrepreneurs are short on time. Combining PayPal’s merchant data with credit data should allow them to make quick underwriting decisions ,” says  Levi King, CEO of Nav. “A lot of financing options available exist these days though, so small business owners need a partner to guide them on what’s the best fit, not just the easiest to get. We created Nav to give business owner transparency into the data that’s being used to judge them by all lenders and can recommend financing options across the spectrum. We’re all for easy access to capital, but want to make sure it’s the most affordable option, too.”

With this deal, it is possible that PayPal will be able to extend financing to more small businesses, including those that don’t currently use its platform. It may also be able to offer additional financing products and services to PayPal merchants. “With these capabilities, Swift Financial will help accelerate our efforts to democratize financial services by enabling PayPal to further fill the small business funding gap,” said the company in an announcement.

This deal is expected to be finalized by the end of 2017, so nothing is likely to change significantly this year.

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