PayPal steps up small-business lending

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E-retailers in need of quick cash can add PayPal to a growing list of non-traditional sources for financing, as mainstream lending to small businesses continues to lag.

The online-payment giant offered 90,000 of its U.S. merchants the option of borrowing 8 percent of their yearly PayPal revenue, up to $20,000, through the Working Capital pilot program. PayPal has extended the program past its initial three-month trial run, with plans to go global and likely more than double the loan maximum, said Darrell Esch, PayPal vice president of small-business lending.

PayPal charges clients a flat fee but no periodic interest or miscellaneous fees. Clients repay the flat fee and principal by allowing PayPal to deduct 10 percent to 30 percent from daily receipts.

Borrowers are charged a lower fee if they allow a higher percentage to be deducted. For instance, a business owner who has the maximum of 30 percent taken out of daily receipts will pay a $281 flat fee on an $8,000 loan, whereas someone who opts for the 10 percent deduction pays a $947 flat fee, according to a sample PayPal fee chart.