PayPal is known to most people as a digital payment system that can be used, for example, to buy consumer purchases from online retailers. With its payment systems PayPal has already conquered an important part of the standard offer of numerous banks. Now, the company goes one step further and dives deeper into the actual banking industry, more specifically in the finance sector. Online merchants now have the opportunity to borrow money from PayPal.
Background information about PayPal
Above all, the digital company PayPal is known for its payment options, which are offered to both commercial and private customers. In the area of online trading, PayPal has meanwhile managed to achieve third place in the total number of payment methods offered. With a share of almost 20 percent, PayPal is only slightly behind the second-placed number system, the direct debit. The purchase is still ranked number one, while other competitors, such as Sofortüberweisung, are clearly outnumbered by less than three percent.
The main business of PayPal is thus the offering of a numbering system, which is now extended by the dealer credit. PayPal already offers this financing option in some countries, such as:
- United States
- Great Britain
PayPal credit for online retailers only
However, private customers should not be happy about the new offer from PayPal, because the credit is aimed exclusively at online retailers. The focus is primarily on small and medium-sized companies, which are offered a further financing solution for use with the so-called business loan. In this way, traders have the opportunity to increase their liquidity, to gain financial leeway and, consequently, to take advantage of the opportunity to further develop their own business.
Possible uses of the PayPal loan are quite diverse, because the online retailers could use the capital, for example, for the following activities:
- Purchase inventory, for example office equipment
- Investing in modern technologies
- Marketing activities
- Investment in logistics
How does PayPal Business Credit work?
The fact that the PayPal Business Credit is a digital financial product is already evident when applying. The application takes only a few minutes and the applicant immediately receives a decision as to whether the credit is approved or not. If a positive credit decision takes place, then only the further key data of the loan must be clarified.
In particular, this includes the amount of the credit line and, in addition, a repayment share must be agreed. This moves between 10 and 30 percent, so that the PayPal Business Credit is therefore not a fixed loan amount, which must be retrieved immediately. Instead, it is a credit line that the online retailer can use at any time, but of course does not have to.
Business credit for start up to a maximum of 24,999 euros
The fact that PayPal’s new loan is aimed particularly at smaller and medium-sized companies as online retailers also shows the limit of the credit limit that exists at the start to a maximum of € 24,999. However, the company states that in the medium term it is quite planned to increase this credit line. An important prerequisite is that the respective PayPal customer already has a PayPal business account for at least three months. In addition, a business activity must be consistently demonstrated within this period.
Incidentally, a major advantage for PayPal is that the transactions already know to what extent the respective online retailers are making sales. This provides a very good opportunity to estimate the credit risk as accurately as possible. In addition, PayPal will automatically arrange the agreed repayment based on the transactions in question. If, for example, the merchant receives a payment via PayPal, a certain amount will automatically be deducted, which at the same time is the agreed repayment share.
The terms of the PayPal credit
Of course, the credit terms are particularly interesting in connection with the new offer from PayPal. An interest rate, as you are accustomed to it from classical bank loans or also the disposition credit on the checking account, does not exist in the sense with the PayPal credit. Instead, the fee to be paid depends firstly on the agreed repayment portion and secondly, the costs are based on the amount of the agreed credit line.
For example, if you choose PayPal for a merchant credit of 10,000 euros with a repayment share of 20 percent, the loan costs you on average just over 250 euros. However, it should be noted that this is actually only a relatively inaccurate average, because the fees incurred in practice are sometimes very different from online to online retailers. This comes about because, among other things, the business relationship plays a role, so that there was certainly some room for negotiation in the costs.
The next level of digital credit
With its business credit, PayPal is certainly part of a new stage, which is characterized by digitization in the area of financing. The special feature is mainly that PayPal itself is not the dealer, because dealer loans as such are not new. Instead, the company is known to act primarily as a payment service provider and now offers its business customers the ability to pre-finance purchases and other transactions as well as investments. The repayment is very transparent and convenient for the customer, because PayPal simply deducts the agreed minimum repayment amount from the current income on the PayPal account.