PayPal’s SME funding hits $500 million as businesses say finance is getting harder

Businesses think getting a loan is becoming a barrier to doing business.

Since it's launch in 2014, more than $500 million worth of business loans has been funded with PayPal's alternative business loans product PayPal Working Capital. Businesses looking to apply can do so and are approved for funds against their PayPal sales. So far, more than 25,000 loans have been approved.

The Working Capital loan is one of many alternative finance options being embraced by small businesses in Australia, who are increasingly embracing non-bank options. New research commissioned by PayPal has found two in five (39%) Australian small- to medium-sized businesses (SMBs) said they would be more likely to consider a non-bank alternative lender compared to only 18% that would consider a traditional bank.

General manager of PayPal Credit in Australia Andrew Baines said that businesses are telling them that securing finance is getting harder.

"The businesses we work with have told us that securing a traditional business loan can be a long and drawn-out process; time which many small businesses just don't have," Baines said. "Increasingly, we are seeing businesses seek tailored solutions which meet their business needs, and bridge the gap left by traditional funding providers."

PayPal's research found that 75% of Australian businesses think the process of getting approved for finance is more difficult than it used to be, while 67% think it's becoming a barrier to doing business.

And as approval for funding is getting trickier, the reasons for needing funds remain. PayPal's research found half of SMBs were more worried than they were last year about cash flow. Over a quarter (28%) said they were always worried about cash flow.

This has been the case in previous years as well. In 2016, research from CommBank found that cash flow was one of the primary causes of stress among small businesses. Business owners had even skipped giving themselves a wage one or more times in the year prior. According to data from the Australian Bureau of Statistics (ABS), the main reason small business applied for finance in the 2016-17 financial year was to maintain debt or liquidity.

PayPal's research found that the main factors putting pressure on small business cash flow are decreased customer spending, increased costs and tougher bank lending standards.

Baines said the launch of PayPal's Working Capital five years ago has allowed them to support small businesses and goes beyond them being a "button on a website".

"PayPal Working Capital only launched in Australia less than five years ago, and with over $500 million now issued to more than 7,000 businesses, we can see that there is an ongoing demand for alternative finance solutions to support small businesses and to help them thrive."

Andrew Baines' tips for managing cash flow

• Prioritise cash flow. "It is imperative that business owners ensure cash flow is included in their top three business priorities and remains a core focus throughout the year."
• Always have a cash reserve for a rainy day. "Businesses need to ensure they are putting money aside throughout the year to pay bills, wages and cover holiday leave. It's also important to budget early to manage any shortfalls and remain frugal, even if you experience an influx of sales."
• Be proactive and chase payments. "Invoicing in a timely manner and not being too lenient on payment terms will help organisations keep on top of cash flow."
• Separate business and personal expenses. "Set clear rules from the outset like making sure to pay yourself a salary and never taking cash from the till to pay for personal expenses."
• "Own" cash flow. "Designate an employee to be the "owner" of cash flow. Selecting a trustworthy employee to monitor cash flow closely and share updates when a certain threshold is reached. If the organisation is just a one-man band, I would recommend setting aside a small chunk of time to review cash flow once a week to make sure the business is tracking well."