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PayPal’s Business Loan Biz: ‘Looks Pretty Steady Right Now’
April 29, 2025During the Q1 earnings call, PayPal was asked about the state of its business loan and working capital business given the potential disruptions with tariffs and the economy.
“…when you look at just general consumer health, coming into what could be a more uncertain time, is looking pretty healthy and pretty good,” said PayPal CFO Jamie Miller. “And then with respect to SMB, good continued consistent performance there too. And on the merchant lending side, as we monitor that, honestly pretty consistent with what I’d say about consumer charge offs also improving. And obviously we’re monitoring the whole thing very, very carefully, but it looks, looks pretty steady right now.”
Later, an analyst asked the management team: “I’m just wondering if you’ve made any changes to underwriting, or how you would think about changes to underwriting in the face of merchants facing kind of cash flow strains on the back of sort of supply chain dynamics, tariffs specifically, and if you guys have any way of sort of dimensionalizing like what sort of cash flow strains your merchants may experience if tariffs do go into effect in terms of things like importing, importing inventory and things of that nature?”
That yielded this reply from Miller:
“I think it’s difficult to answer the latter part of your question, but if we go back to the merchant lending part of it, this is a portfolio that is actively managed, and it’s something that a year ago when [——] came in and really reconstituted the team, they’re very focused on how we can help our small businesses really navigate growth. And so the portfolio has a couple of different things in it. One is just really helping small businesses with working capital and inventory buy and we monitor that and underwrite it, you know, with an eye towards credit, towards cash flow. And when you look at this, these are things where we’ve got cash sweeps with sales as sales come in. It’s just a very well constructed portfolio from both an underwriting and from a risk management perspective. And the other side of it is PayPal Business Loans, which are cash flow based, they’re typically personally guaranteed. And again, these are things that we monitor, all the different indicators of the portfolio, and we adjust as we go. I mean we did make some adjustments in March to tweak and fine tune and make our underwriting slightly more conservative, but it’s something the team is all over. And I think we can react very quickly in a changing environment.”
PayPal Exceeds $30B in Business Loans and Merchant Cash Advances
March 26, 2025PayPal has officially crossed $30B in merchant cash advance and business loan originations, the company announced.
“Access to capital is consistently one of the top challenges small businesses face as they look to maintain and scale their businesses,” shared Michelle Gill, EVP and GM of SMB and Financial Services at PayPal in an official release. “Traditional business loans are not only difficult to secure for small businesses, but the application process can be challenging and prohibitively time consuming. PayPal’s financing solutions have a streamlined online application process with no lengthy paperwork or extensive credit checks, and approved PayPal loans are funded within minutes. We launched PayPal Working Capital and PayPal Business Loan to serve this important need, and to provide a quick and responsible way to inject much needed capital to help fuel small business growth.”
PayPal had pulled back significantly on originations for a while as can be seen here but ramped back up last fall. For example, PayPal said that global originations had surpassed $25.6B at the end of Q2 2022 across a total of 1.3 million transactions. That means it has added roughly $5B in originations across 100,000 transactions in the span of almost 3 years since they now report 1.4 million total.
“Small businesses have seen tremendous value in PayPal Working Capital and PayPal Business Loan, as both offerings continue to receive remarkable feedback from customers,” the company said. “Additionally, both offerings have achieved Net Promoter Scores of 76 and 85 respectively and our customers renew loans or access our offerings on a repeat basis more than 90% of the time. Businesses also experience an increase in their total PayPal payment volume by 36% after adopting PayPal Working Capital and 16% after taking a PayPal Business Loan.”
PayPal: Our merchants grow after taking a business loan from us
February 5, 2025PayPal is feeling optimistic about its business loan program now that it has been reset on a path toward growth. “As the business matures, PayPal Business Loan offers more traditional merchant financing to match the increasing complexity and multichannel nature of larger businesses,” said CEO Alex Chriss during the Q4 earnings call. “Our business financing solutions increase loyalty and engagement, driving the PayPal flywheel. Merchants typically increase their PayPal volume by 36% after adopting PayPal Working Capital and 16% after taking a PayPal Business Loan. Our merchant lending originations were $3 billion in ’24, demonstrating our leadership and that there’s plenty of room to grow to support our customers.”
PayPal offers this product in the US, Germany, France, the Netherlands, UK, and Australia.
“The PayPal Working Capital product allows businesses to access a loan or cash advance for a fixed fee, based on their annual payment volume processed by PayPal,” the company states. “The PayPal Business Loan product provides businesses with access to short-term financing for a fixed fee or interest based on an evaluation of the applying business as well as the business owner. In the U.S., these products are provided under a program agreement with an independent chartered financial institution.”
Between them, PayPal is one of the largest online business lenders in the US.
PayPal is Back to Growing its Merchant Lending Program
October 29, 2024After taking drastic action over the last year to rein in surging SMB lending charge-offs, PayPal believes it has corrected the issue.
“We have now fully lapped the actions taken last year to tighten credit underwriting and reduce on balance sheet risk,” said PayPal CFO Jamie Miller on the Q3 earnings call. “We’re seeing better performance across the portfolio, and have now started to modestly grow merchant originations. We’ll continue to prudently manage the portfolio’s exposure with the goal of sustaining our balance sheet-business model, while providing our customers with more ways to manage their cash flow, spending and borrowing needs.”
The reduction in originations since the pullback had been severe, down by as much as 50% by AltFinanceDaily’s prior estimates.
PayPal Business Loan/Working Capital Volume Down By Half Since Pullback
July 30, 2024PayPal’s small business financing volume has been roughly reduced by half since the company officially announced a pullback in 2023.
For example, consider that PayPal purchased only $774M in merchant receivables through the first half of 2024 vs $1.4B purchased in the first half of 2022. Though these numbers are not originations per se they are proxy indicators that show just how much has changed.
Of the $774M purchased in the first half of 2024, only $355M of it was from the 2nd quarter. Meanwhile, one of its competitors originated $918M in the same quarter.
Back in early 2022, PayPal announced that it was then one of the top five lenders to small businesses in the United States. It claimed to be doing $4B a year in originations in 2019, at that time making it arguably the largest online business lender in the country. Today the leading online small business lenders are Block (Square Loans) and Enova (OnDeck & Headway Capital).
Looking at PayPal’s Business Funding Charge-Offs
June 10, 2024When PayPal announced a sudden and dramatic pullback on its MCA and business loan operations in the third quarter of 2023, it was surprising news. For instance, the company’s net charge-off rate had been trending downward for years, coming in 7.4% at year-end 2019 right before covid and going down to 4.7% in 2021 and down to 4.5% in 2022. By June 2023, however, that number had somehow soared to 13.3% and by September was 20.4%. At the time, PayPal attributed this shift to “the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding.” Because of how they calculate charge-offs, reducing originations at the same time that charge-offs were peaking made that number look a bit worse than it was. But still…
Although many funding and lending companies have complained of an increase in fraudulent applications in the immediate post-covid era, PayPal’s figures can hardly be attributed to fraud. That’s because their charge-off rate doesn’t even include losses from fraud.
PayPal’s products are very short-term so it was able to rapidly scale back its balance sheet exposure. Total merchant advances and loans outstanding, net of participation interest sold, decreased from $2.1B in Q1 2023 down to $1.2B in Q1 2024. Of the active loans, 88.7% were considered current in Q1 and 4.4% were greater than 90 days beyond their projected payment pace. With the exception of 2020 (when the % > 90 days past expected hit 12.5%), 4.4% is among the worst PayPal has experienced since 2017.
PayPal Reiterates Tightening of Business Lending Originations
February 8, 2024After announcing a sudden pullback on business loans and MCAs in Q3 due to higher than expected charge-offs, PayPal maintained that the belt was still tightened in Q4.
“We have taken a prudent and active approach to managing our overall credit risk, tightening originations within our PayPal business loans portfolio,” said PayPal CFO Jamie Miller on the quarterly earnings call. “We are carrying lower credit receivables after tightening originations last year.”
Tightened originations has led to the company being dethroned as the top online unsecured small business lender. PayPal at the very least held that notable distinction in 2019 and 2020 but they’ve since been overtaken by Square Loans and Enova.
PayPal Pulls Back on MCAs and Business Loans
November 2, 2023PayPal’s merchant cash advance and small business loan originations in 2023 are down significantly from 2022. The company revealed that it had only purchased $1.3B in merchant receivables for the first 9 months of this year versus $2.3B over the same period last year.
In the earnings call, Acting CFO Gabrielle Rabinovitch said that the company is maintaining a “tightened origination strategy for the PayPal business loans portfolio.”
Charge-offs are up. “The increase in the charge-offs for the nine months ended September 30, 2023 compared to the same period of the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in a deterioration of the overall credit quality of loans outstanding,” the company disclosed.
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See Post... paypal. we are very particular about our staff and pay more to get a higher quality person with higher moral and ethic code. we are known for deal security. what gives you the idea?". i responded with how i came to the conclusion which was my salesman was on the phone with a merchant that we had an offer from greenbox on for i believe was 21k and were in the process of closing. suddenly the merchant says hold on i'm getting another call, he comes back on the phone after 30 seconds and says who the hell is elliot from greenbox and why are they saying that "brokers are shopping out their file to them because they couldnt get the deal done". keep in mind, contracts had not gone out yet so he had no idea who greenbox was yet. to my surprise (or his admission of guilt) i never heard back from him or anyone else there. i left it alone and gave them the benefit of the doubt hoping it wouldn't happen again once i brought it to their attention. , , fast forward to today.. i get a call from "true capital" number 949-200-1848 asking for my merchant by name thinking he had the merchants number and then i ask which one of my (the merchants) companies he was calling about and he gave the companies correct name (keep in mind i submitted the file to them tuesday). i checked which lenders i submitted that file to which was a total of 2 companies (other lender was in tx) and greenbox was the culprit. true capital has no online presence what so ever which means they are a entity they have just to backdoor which i'm sure they have a few of and true capital is based in fl according to the rep that called. i called back from from a diff numbe... |
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