PayPal doles out $1 billion in small business loans since launch of Working Capital

The Working Capital small business lending program is an alternative to traditional bank lending, and is available only to PayPal sellers.

PayPal says its small business lending program Working Capital has disbursed $1 billion in loans to more than 60,000 PayPal merchants.

The milestone follows a string of substantial growth metrics for Working Capital since its inception in 2013.

Last year, PayPal announced the program was distributing $1 million in loans each day, whereas now it's loaning $100 million each month. And it was less than 6 months ago since PayPal said the program had doled out roughly $500 million in total small business loans.

Much of the success of Working Capital is owed to the fall of the banking system during the 2008 financial crisis.

According to Darrell Esch, head of business lending at PayPal, small businesses are still down 20 percent from the great recession, with many struggling to find access to capital from traditional bank loans.

As a result, alternative lending systems such as Working Capital have flourished due to their departure from all the old guard red tape.

Because PayPal operates within a closed system, borrowers can secure funds without the traditional credit check and mountain of paperwork. Instead, PayPal is able to peak into a merchant's sales history and the number of unique customers it brings in each month. If all the numbers line up, a merchant can have funding deposited instantly into their PayPal account.

From there, PayPal is able to remain closely involved in the repayment process.

Repayment is taken directly from PayPal sales coming over the network, with the merchant given the ability to select a rate of repayment. So essentially the funds are just taken out automatically to pay down the loan.

It's unclear how much revenue PayPal brings in from Working Capital -- Esch said those figures are not disclosed. But he acknowledged that it's a fee-based program and therefore PayPal is indeed making money from it.

In terms of competing programs, Square Capital is probably the most well known -- albeit significantly smaller. In August Square said the small business lending program had extended more than $225 million in financing to Square sellers since May 2014, with more than $1 million going out each day.

Those numbers put Square far below PayPal, but the program is still relatively young, and given its progression metrics and investment backing, it could easily become a more challenging player over time.

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