How fintech funding is closing the £2.5 billion funding gap for UK small businesses
Today, around 99% of all businesses in the UK are classified as small and medium-sized enterprises (SMEs), employing around 61% of the private sector workforce. However, despite their important role in the UK economy, many SMEs are struggling.
Recent research has found that the number of small businesses in the UK has fallen from 5.9 million in 2020 to 5.5 million today. Many businesses are feeling the pressure from rising operating costs, slow revenue recovery and, most importantly, the ongoing struggle to secure funding.
Addressing these funding challenges is critical to helping SMEs survive and grow, and fintech solutions are making a real impact in this space. As PayPal Working Capital’s internal data has shown, PayPal has stepped in to address the £2.5 billion funding gap facing UK small businesses over the past 10 years with its PayPal Working Capital solution.
In its most agile form, PayPal Working Capital offers SMEs a fast and flexible way to access the capital they need, based on their sales history.
Traditional financing methods can present roadblocks for small businesses
The traditional UK lending system can present challenges for small and new businesses, with extensive documentation, long approval times, and a rigid lending process creating barriers for SMEs. In April 2024, for example, the Treasury Committee reported that small businesses were facing ‘unnecessarily harsh’ conditions due to restrictive measures from banks and regulators, which could prevent them from accessing essential funds.
The Federation of Small Businesses (FSB) has also expressed concern about declining funding success rates. Before the pandemic, 65% of SMEs were able to get funding, a figure that has dropped to 61% by 2023. As a result, businesses looking for reliable financing are increasingly turning to fintech options as an accessible and flexible option. In fact, according to research conducted by Sonovate in 2023, four out of ten SMEs choose fintech lenders over traditional banks when looking for business capital.
Fintech solutions provide SMEs with alternative sources of financing
From managing cash flow to purchasing inventory, investing in technology or upskilling employees, SMEs depend on financing to support their growth. Fortunately, fintech solutions, such as PayPal Working Capital, present SMEs with financing alternatives that are easy to use and manage.
SMEs need modern financing solutions that match the realities of running a small business, and options like PayPal Working Capital present an attractive alternative. Unlike traditional business loans from banks, PayPal Working Capital offers financing based on PayPal’s SME sales history. This enables businesses to borrow up to 35% of their annual sales through PayPal without the need to show extensive financial statements. The application process is fast and straightforward, and funds are available immediately.
In addition, with PayPal Working Capital small businesses choose a percentage of their PayPal sales that will go toward paying back early cash to adjust to the business’s cash flow needs. Returns are tied to daily sales, meaning businesses pay more when sales are high and less during slower times. With one fixed fee, business owners are freed from ongoing interest payments and have a clear view of total payment costs, meaning there are no unwelcome surprises.
How can fintech solutions help your business grow?
Since it was founded in 2014, PayPal Working Capital has distributed £2.5 billion to 58,000 UK businesses across a range of sectors. From fashion to auto parts, these capital advances have allowed small businesses to thrive in today’s challenging economic environment. According to PayPal’s Working Capital SMB Survey from July 2024, nine out of 10 (91%) of these businesses said their income increased or remained stable as a result of the funding they received.
The London Candle Company is one of the businesses that benefited from PayPal Working Capital. A small business focused on selling high quality, competitively priced candles in bulk to businesses in the food and hospitality industry, The London Candle Company took advantage of PayPal’s innovative Working Capital return method.
“PayPal Working Capital has been very useful when I need to collect more candles before the busy winter months, especially because I need to pay my suppliers quickly,” Founder and Managing Director, Jonathan Welland explains, “I’ve found it easy and convenient to use, as you choose percentage of your sales that you paid in advance – you still have income but you only lose part of it. And before I know it, it’s paid off.”
Small business owners across the UK, like Jonathan, are already making significant use of fintech models, which are rapidly changing the traditional lending industry. Could your business be next? Find out more about PayPal Working Capital and enable your business expansion.
