PayPal has agreed to acquire Swift Financial for an undisclosed sum.

Swift has developed small business online lending services based on alternative and traditional credit evaluation criteria.

The deal is part of PayPal’s effort to ramp up its Working Capital unit to foster strategic lock-in for small business merchants.

Quick Take

Financial services technology company PayPal (PYPL) has announced an agreement to acquire small business financing company Swift Financial for an undisclosed amount.

Swift provides business loan and short-term financing underwriting to small businesses.

PayPal is acquiring Swift to bolster its Working Capital unit as a strategic move. It seeks to provide a range of financial services to small business merchants that help to solidify and deepen their relationship within PayPal’s platform.

Target Company

Wilmington, Delaware-based Swift was founded in 2006 to streamline the process of providing cash advances and loans to small businesses in the U.S.

Management is headed by founder and CEO Ed Harycki, who was previously director of business lending at MBNA America and founder and CEO of Accucard.

Swift’s main offerings are two financial products:

  • Business Term Loans
  • Working Capital Advances

The company states that it has provided funding to over 20,000 businesses since inception.

Acquisition Terms and Rationale

Neither company disclosed the acquisition price or terms. PayPal did not file an 8-K that would have been required if the transaction had been a material amount, nor did it provide any change in forward financial guidance, so the transaction appears to be a non-material event.

PayPal is acquiring Swift in order to build on its underwriting capabilities within its PayPal Working Capital unit that it launched in 2013.

The two companies had previously worked together, so the deal likely has very low integration risk.

PayPal wants to build its small business financing capabilities as a strategic imperative that assisted in retaining small merchants has customers for its payment processing and other services.

As PayPal stated in the deal announcement,

We know and value Swift’s technology platform and people, and we believe their talent and capabilities will further strengthen our overall merchant value proposition. Building upon an existing commercial relationship, the acquisition of Swift Financial will enable us to better serve small businesses by enhancing our underwriting capabilities to provide access to affordable business financing solutions to more businesses to help them grow and thrive. While PayPal Working Capital provides access to capital based exclusively on proprietary insights, Swift’s technology will allow us to assess supplemental information to more fully understand the strength of a business and provide access to complementary financing products to meet the needs of small and mid-sized businesses.

Swift provides additional underwriting data that can help PayPal ‘accelerate [its] efforts to democratize financial services,’ meaning, provide more loans to small businesses based on additional criteria that may be better than traditional credit evaluation.

Since its launch in 2013, PayPal Working Capital has provided more than $ 3 billion in funding to 115,000 small businesses. Small business lending is proving to be a more lucrative aspect of online lending, especially when compared to consumer lending which has seen market turmoil in recent years through volatile peer-to-peer lending marketplaces.

The addition of Swift should be a net positive for PayPal as it seeks to provide a wider range of financial services to enhance small business merchant lock-in to its platform.

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BusinessLoan – BingNews