Running a small business can be hectic, particularly as finances get tight. With SMB owners often finding it difficult to access new forms of financing through traditional means, such as investors or banks, PayPal has built a business designed to enable its own merchants to request funding without a credit check.
PayPal launched the Working Capital service in 2013 when it noticed smaller merchants having difficulty not only accessing loans, but understanding the increasing complexities that come with securing a loan. These SMBs, which include Independent Reign, Heart & Soul and Bee Raw, all have used the service to gain flexibility in their financing processes.
“We started hearing it coming out of the financial crisis that our customers were having a hard time financing,” said Darrell Esch, VP and GM of Business Financing Solutions at PayPal. “But by 2012, as we were talking to customers and conducting customer-facing research around the services they expect PayPal to provide, more open-ended questions related to accessing capital kept coming up as one of the pain points they were having.”
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Since the service’s launch, PayPal Working Capital has provided more than $2 billion in funding to more than 90,000 SMBs globally. More than half of these businesses leverage the loan for inventory purposes; other uses include cash flow management, warehouse expansion, seasonal hiring, updating web sites, marketing and promotion.
Independent Reign Backs Inventory To Handle Quicker Turnaround Times
Janine Mastrorilli, owner of online luxury handbags and fashion accessories seller Independent Reign, focused on applying the funding to assist with inventory management. The business itself doesn’t invest much capital in inventory ahead of time due to the unpredictability that often comes with sales highs and lows.
“That doesn’t leave me in a good position to take advantage of opportunities or sell on certain sales channels that want quick turnaround times and quick shipping,” Mastrorilli said in an interview with Retail TouchPoints. “When PayPal Working Capital came around, it seemed ideal for me because I can purchase materials and/or create inventory, and then take advantage of some of these opportunities that pop up, whether it’s a big wholesale order or an online channel that needs quick turnaround time.”
At the same time, Mastrorilli explained that the business would prefer to use the PayPal service over a credit card. While a credit card payment includes an interest rate and remains the same regardless of monthly sales performance, PayPal Working Capital only requires a single, fixed fee, and a percentage of the company’s daily sales.
Heart & Soul Launches Catering Service With Added Capital
Another PayPal client, North Carolina-based personal chef and catering service Heart & Soul, found its benefit from the funding not in adding inventory but in driving growth for the business as a whole. Heart & Soul, which has secured loans from PayPal five times already, was able to kick start its catering service, hire a new chef and relocate to a commercial kitchen.
“Every time I’ve taken a loan, the revenue has spiked,” said Lisa Franklin Brooks, Chef and Owner of Heart & Soul. “You can directly correlate our growth in sales with the investment in the business. It’s reinvesting in the business, expanding, putting money into marketing and putting it into delivery trucks. Every move we’ve made has been strategic, and the amount of capital we have access to has grown each time.”
Brooks noted that one of the biggest positives is being able to have a hands-off approach to finances while retaining complete focus over the culinary and catering business.
“Payments are automatically taken out of a percentage of my daily sales,” Brooks said. “I don’t have to worry about sitting down to pay a bill, and I don’t have to worry about if I have a great month or a slow month. If I have a slower month, I’m paying back less, and if I have a great month, I’m paying back more.”
Bee Raw Balances PayPal With Traditional Lending
Bee Raw, a single-source honey seller in Brooklyn, N.Y., uses the PayPal financing option in conjunction with traditional lending avenues, since most of the company’s cash flow comes through bulk purchases. However, as the company inches closer to the holiday season and it functions more like an online retailer, it needs to account for increased labor costs and inventory expenses. The platform’s flexibility enables the Bee Raw team to fill cash flow gaps during the season quickly without having to take hours to apply for a loan.
“I believe there’s a place for both sides,” said Zeke Freeman, Founder and Managing Partner of Bee Raw. “At the end of the day there are some benefits to traditional lending. In the good interest rate environment, if you have the time, the history and the relationship with the bank, there’s room for that. As every business grows, there’s probably going to be the opportunity for lending somehow. But that doesn’t mean that PayPal Working Capital has to go away because it’s such an easy facility to use. I can’t imagine a small business not wanting to have that flexibility when needed.”
Businesses applying for PayPal Working Capital must have a PayPal business or premier account for at least three months; process between $20,000 and $10 million within those three months, or within any time period less than or equal to 12 months.
