PayPal’s Business Loan Biz: ‘Looks Pretty Steady Right Now’

During the Q1 earnings call, PayPal was asked about the state of its business loan and working capital business given the potential disruptions with tariffs and the economy.

“…when you look at just general consumer health, coming into what could be a more uncertain time, is looking pretty healthy and pretty good,” said PayPal CFO Jamie Miller. “And then with respect to SMB, good continued consistent performance there too. And on the merchant lending side, as we monitor that, honestly pretty consistent with what I’d say about consumer charge offs also improving. And obviously we’re monitoring the whole thing very, very carefully, but it looks, looks pretty steady right now.”

Later, an analyst asked the management team: “I’m just wondering if you’ve made any changes to underwriting, or how you would think about changes to underwriting in the face of merchants facing kind of cash flow strains on the back of sort of supply chain dynamics, tariffs specifically, and if you guys have any way of sort of dimensionalizing like what sort of cash flow strains your merchants may experience if tariffs do go into effect in terms of things like importing, importing inventory and things of that nature?”

That yielded this reply from Miller:

“I think it’s difficult to answer the latter part of your question, but if we go back to the merchant lending part of it, this is a portfolio that is actively managed, and it’s something that a year ago when [——] came in and really reconstituted the team, they’re very focused on how we can help our small businesses really navigate growth. And so the portfolio has a couple of different things in it. One is just really helping small businesses with working capital and inventory buy and we monitor that and underwrite it, you know, with an eye towards credit, towards cash flow. And when you look at this, these are things where we’ve got cash sweeps with sales as sales come in. It’s just a very well constructed portfolio from both an underwriting and from a risk management perspective. And the other side of it is PayPal Business Loans, which are cash flow based, they’re typically personally guaranteed. And again, these are things that we monitor, all the different indicators of the portfolio, and we adjust as we go. I mean we did make some adjustments in March to tweak and fine tune and make our underwriting slightly more conservative, but it’s something the team is all over. And I think we can react very quickly in a changing environment.”