Discouraged by Banks, Small Merchants Increasingly Turn to PFs for Capital

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As small business lending continues its slow rebound from the recession, many small businesses are still experiencing frustration when they try to obtain funding to grow their businesses. In an analysis it conducted last year, the Wall Street Journal reported that small loans to businesses in 2014 remained down about 38% from their high in 2006. 

In a move that builds on the payment facilitator model’s strengths in this challenging market, London-based Paysafe announced a relationship with lender IOU Financial last week. The agreement expands the global PF’s offerings beyond payment processing into an area it says will help it fuel the growth of North American small businesses.

According to a company announcement, the agreement enables the partners to provide capital management solutions to small business clients through their respective platforms.

Agreements like this are an asset for payment facilitators, who are increasingly taking advantage of their flexibility to offer products and services that are relevant to their submerchants’ businesses, and that help those clients integrate payment processing with their other business functions rather than having to treat it as completely separate.

That relationship is precisely the reason offering access to capital is successful for some PFs. Shopify stepped into this market in April when it introduced Shopify Capital, providing cash advances to its merchants.

“Shopify is able to tailor cash advances to each merchant’s needs, based on data processed through the Shopify platform,” the company said in a press release at the time.

Going beyond cash advances, Square offers merchants loans through its Square Capital product. In its second quarter letter to shareholders, the company discussed the product’s growth, which it reported as being up 123% year over year:

“We’re able to proactively offer loans to a seller because our real-time payments and POS data provides us with a complete view of the seller’s business. This eliminates the lengthy (and often unsuccessful) loan application process for the seller, while facilitating prudent risk management,” the letter said.

Carla Erlick, senior vice president at Paysafe, told PaymentFacilitator.com that the company’s partnership with IOU Financial “enables businesses to understand the breadth of opportunities that are available to them via a partnership between two companies with similar values. In addition to this, access to funding and payment processing are two of the most critical components for small businesses to grow. This partnership sheds some light on them and demystifies lending and processing, allowing businesses to make more informed decisions for their long-term growth.”

The partnership is “focused on informing and educating small businesses on capital growth and management in the form of marketing and co-branding initiatives,” she said.

IOU Financial, which is headquartered in Montreal, provides loans to small business including medical and dental practices, grocery and retail stores, restaurant and hotel franchisees and e-commerce companies.

The agreement covers merchants in both the U.S. and Canada.

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