The online payments firm PayPal has announced it is to start advancing cash to UK small businesses.
The PayPal Working Capital fund is set to launch later this year. The company is owned by eBay and claims that it would only recoup money when firms sell through PayPal services. However, recent complaints from customers in the US have highlighted that unauthorised repayments have been taken from accounts. PayPal has said that the payments were taken in error, and would be credited back to customers.
‘Funding in minutes’
PayPal states that it will approve advances based on customer history, and provide ‘funding in minutes’
PayPal Working Capital is designed as an alternative to a traditional bank loan and other lending services. The funding mechanism is due to launch in the UK in the early autumn as a cash advance service. The company refused to reveal the size of its UK fund, but said it had provided $140m advances to US customers since September. The service will have to compete with other online cash advance firms in the UK, such as Kabbage.
Rupert Keeley, chief executive of PayPal Europe told the BBC “We haven’t set the rates at the moment”
However, PayPal claims that firms will not require a credit check, and pay a single fee for the advance. These fees will depend on sales history with PayPal, the size of the advance and the repayment schedule. The businesses then repay the cash with a share of their PayPal sales.
As an example, a business with annual PayPal sales of £100,000 that is in need of a cash advance of £8,000, and chooses to repay 15% of future sales – so £15 in every £100 goes towards repayment –will be charged a £599 fee. The total amount repayable will be £8,599.
Mr Keeley further stated that the company was “quite relaxed” about not taking repayments if no sales are made on a particular day
Despite similar terms for US customers, there has been several complaints about unauthorised repayments taken from customer accounts.
One US customer said, “My PayPal account was emptied as an unauthorised payment was deducted this morning and sent to my working Capital pay pack”
“I just had $68 sent to PayPal Working Capital when I only has $48 in sales yesterday! Not very happy here” another customer wrote.
According to PayPal the payments had been taken in error due to a temporary system error, and that the payments could be credited back to the customers. The firm stated that “The catch up payments that were incorrectly processed will be reversed and credited back to the affected businesses’ accounts”