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Trumpeting its financing services for small and mid-size businesses, payments giant PayPal Holdings Inc. disclosed Wednesday that it has passed $30 billion in global loan originations. It has extended more than 1.4 million loans and cash advances to more than 420,000 business accounts worldwide since 2013, the company said.
PayPal, which offers its PayPal Business Loans product in the United States and PayPal Working Capital in the U.S., United Kingdom, Germany, France, Australia, and the Netherlands, says small and medium-size businesses still face a longstanding concern: access to capital.
“Access to capital is consistently one of the top challenges small businesses face as they look to maintain and scale their businesses,” Michelle Gill, executive vice president and general manager of SMB and financial services at San Jose, Calif.-based PayPal, said in a statement. “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.”
PayPal launched Working Capital in 2013, followed by PayPal Business Loans, a term-loan product, in 2017. Working Capital is repaid as a percentage of a merchant’s PayPal sales.
U.S. loans under the two programs are provided by Salt Lake City, Utah-based WebBank, a state-chartered industrial bank from which PayPal buys the receivables. Overseas, PayPal extends loans through its international subsidiaries.
The net value of the merchant-loan portfolio at the end of 2024 was $1.5 billion, up 23% from $1.2 billion 2023 but still well off $2.1 billion in 2022, according to PayPal’s annual reports for the last two years. The portfolio suffered a big spike in loan losses in 2023—the net chargeoff rate jumped to 18.8% compared with 4.5% in 2022. The 2023 report blamed “the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding related to our PPBL product.”
Corrective measures appear to have worked, though they resulted in reduced Business Loans originations in 2023. The net chargeoff rate fell to 5.3% last year, according to the report for 2024. Last year’s increase in receivables and declines in overdue loans and chargeoffs “was due primarily to the improvement in underwriting and credit quality of the PPBL portfolio,” the latest report says. “In response to changing portfolio performance and macroeconomic environment, we continue to monitor risk and evaluate and modify our acceptable risk parameters. Changes to such parameters resulted in an increase in PPBL originations in 2024.”
Chicago-based payments consultant Cliff Gray of Gray Consulting Ventures LLC says the Covid-19 pandemic, which spread worldwide in 2020, may have played a big role in PayPal’s merchant loan-loss spike. “The high chargeoff rates in 2023 would make sense as a delayed response to the Covid crisis, which had a striking impact on the SMB space,” Gray tells Digital Transactions News by email, “Many were able to survive for a year or so, but eventually failed, leading to loan chargeoffs.” He adds that “one could argue Covid is a driving factor in the recent surge in surcharging.”
Despite the lending risks, loans to its merchant base can be a profitable revenue source for PayPal, according to Gray. “Merchant underwriting, being essentially the same process as commercial loan approvals, provides all the data needed to make loan decisions,” he says. “PayPal is largely remonetizing their portfolio through products like Business Loans and PayPal Capital, a smart play by any measure.”
