PayPal targets UK small businesses for cash advances

PayPal said it would only recoup money when firms sell through its services.

Online payments firm PayPal is to start advancing cash to UK small businesses, the company has announced.

The PayPal Working Capital fund is due to launch later this year, the firm said.

The eBay-owned company said it would only recoup money when firms sell through PayPal services.

However, earlier this month there were complaints from US customers about unauthorised repayments taken from accounts.

The payments were taken in error, and would be credited back to customers, PayPal said at the time.

Cash 'in minutes'

PayPal Working Capital is designed as an alternative to a traditional bank loans and other lending services.

The funding mechanism has been providing loans to US businesses since September last year, and is due to launch in the UK in the early autumn as a cash advance service.

PayPal declined to reveal the size of its UK fund, but said it had provided $140m (£82m) advances to US customers since September.

The service will compete with other online cash advance firms in the UK such as Kabbage.

PayPal will approve advances based on customer history, and says it will provide "funding in minutes".

"We haven't set the rates at the moment," Rupert Keeley, chief executive of PayPal Europe, told the BBC.

Firms will not require a credit check, and pay a single fee for the advance, PayPal said.

Fees will depend on sales history with PayPal, the size of the advance, and the repayment schedule.

Businesses repay the cash with a share of their PayPal sales.

For example, a business with annual PayPal sales of £100,000 that wants a cash advance of £8,000, that 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.

If no sales are made on a particular day, the company said it will not take repayment.

"We're quite relaxed about that," Mr Keeley said.

Unauthorised repayments

Despite similar terms for US customers, earlier this month there were several complaints about unauthorised repayments taken from customer accounts.

"My PayPal account was emptied as an unauthorised payment was deducted this morning and sent to my Working Capital paypack," one US customer wrote.

"I just had $68 sent to PayPal Working Capital when I only had $48 in sales yesterday! Not very happy here," another customer said.

PayPal said the payments had been taken in error, and that payments would be credited back to customers.

"Due to a temporary system error, catch-up payments processed on July 14 and July 15, 2014, were calculated or applied incorrectly to some PayPal Working Capital accounts," the PayPal Working Capital team told customers.

"The catch-up payments that were processed incorrectly in the affected accounts will be reversed and credited back to the affected businesses' PayPal accounts," the firm added.