Getting cash into the hands of small businesses is turning into a big business for mobile payments companies like Square and PayPal.
Just yesterday, PayPal announced in a blog post that it’s loaned $US500 million to small businesses in the last 18 months, at a rate of $US2 million per day, through its PayPal Working Capital program. The loans top out at 15% of their PayPal transactional volume, with a cap of $US85,000.
Business owners can apply online and have the funds deposited in your account within “minutes,” PayPal promises. PayPal Working Capital so successful, PayPal says, that 90% of borrowers come back for another loan. PayPal gave the real-world example in its blog entry of a business using five Working Capital loans to boost holiday inventory over the last several holiday seasons.
Square Capital — the advance-payment arm of the mobile payments company started by Twitter co-founder Jack Dorsey — has dispersed over $US100 million in cash advances to small businesses in the last year or so. In fact, Square says, it’s advanced $US25 million in the last month alone.
To keep that momentum going, the startup announced a round of funding (Square won’t say how much) from original investor Victory Park Capital and new investor Colchis Capital that will very specifically go into the Square Capital business.
It’s pretty obvious to see why these payments companies are so highly touting their small business finance programs: Apple Pay is building momentum, which is a clear threat to both PayPal’s and Square’s core payments businesses. But it’s unlikely that Apple would ever get into the small business loan game.
Meanwhile,because they already work with small businesses on credit card and mobile payments, Square and PayPal have a built-in market — a market that wants an easier way to get a little bit of working capital.