PayPal’s response to the UK Government’s Small Business Strategy to empower SME success in a fast-changing digital economy
By Jan Eger, Government Relations
- SMEs are the backbone of the UK economy, yet an outdated operating environment is holding them back.
- The Government’s SME Strategy is a welcome step forward – recognising access to finance as a key priority – but further measures are needed to unlock SME growth potential.
- PayPal Working Capital has provided over £2.75 billion to more than 60,000 small businesses, proving the demand for innovative solutions.
- Targeted reforms to existing regulations, enhanced financial education, and support for innovative financing options can turbocharge SME growth and resilience across the UK.
Jan Eger, Head Of Government Relations, UK & Ireland
Small and medium-sized businesses (SMEs) are the lifeblood of the UK economy, accounting for 99.8% of the business population and employing over 60% of the total workforce.1 Despite their critical role, an outdated operating environment continues to cause a wide range of financing challenges that are impeding their growth, innovation, and resilience.
This article explores the key growth barriers faced by SMEs in the UK, the innovative solutions offered by PayPal, and our practical policy recommendations which seek to build an ecosystem that turbocharges SME growth across the country. These insights and recommendations were shared with the UK Government in our response to a recent call for evidence on small business financing. We are pleased that the Government has now responded by launching its SME Growth Strategy, 'Backing Your Business', which recognises the urgent need to unlock access to finance for small businesses across the UK as one of the most important issues.
Financing Challenges for Small Businesses in the UK
The intricate application processes of traditional lenders often discourage small businesses from seeking funding altogether. Lengthy paperwork requirements, multi-year financial projections, and high perceived costs create unnecessary hurdles – especially for sole traders and microbusinesses.
For sole traders, borrowing under £25,000 for business purposes is governed by consumer protection regulations under the Consumer Credit Act (CCA). These rules, originally designed to safeguard individual consumers, impose restrictions that can make it difficult for businesses run by sole traders to access financing tailored to their needs. This creates a misalignment, as sole traders often seek these loans for their business rather than personal expenses.
Combined with limited access to financial information and educational tools, these barriers push small businesses away from affordable external funding that could sustain and strengthen their growth.
Modernising SME finance by amending the regulatory environment and expanding tailored financing options offers a clear path to unlocking growth for small businesses across the country.
PayPal's Solution: An Innovative Financing Option for SMEs
PayPal Working Capital (PPWC) is a prime example of how tailored financing options can transform the small business landscape. By analysing PayPal account sales history, PPWC simplifies the application process, bypassing excessive paperwork. Approved applications are funded within minutes, giving small businesses rapid access to much-needed capital. Over the last 10 years, PayPal has provided over £2.75 billion in financing to more than 60,000 businesses across the UK, including over 230,000 individual advances.2 This has injected much needed liquidity to support the future success of UK small businesses.
Once small businesses secure funding, PPWC aligns repayments with sales flow, reducing pressure during slower business periods. This has proved to be hugely popular – 93% of merchants that responded to a recent survey told us that they will use PPWC again in future – demonstrating clear demand for PPWC and appetite for similar initiatives.3
PayPal believes that this success can inspire broader policy measures to address barriers to small business financing, stimulate competition, and drive small business growth across the UK.
Aligning with Government Ambitions
The SME Strategy recognises the contribution that SMEs could make to the UK economy – accelerating SME growth by just one percentage point annually could deliver £320 billion to the UK economy by 2030.4 The Government aims to achieve this by increasing access to finance, promoting exports, reducing late payments, and improving the procurement process for SMEs.
Delivering on these ambitions requires the kind of innovative financing solutions that PayPal Working Capital represents – and the regulatory reforms outlined below.
Actionable Policy Recommendations to Turbocharge SME Growth
PayPal's response to the UK Government's consultation highlighted several opportunities to transform SME financing and drive growth across the economy. Based on our extensive experience serving UK small businesses, we are calling for the following policy changes:
1. Reform the Consumer Credit Act Threshold for Sole Traders
The provisions outlined in the Consumer Credit Act disproportionately impact sole traders, making it challenging for lenders to offer affordable and tailored financing solutions. We recommend adjusting the threshold for sole traders borrowing for business investment by either:
- Eliminating or reducing the £25,000 threshold to foster competition and support smaller financing requirements, or
- Implementing a new regulatory exemption for sole traders borrowing for business purposes to streamline their access to lower-value business loans.
2. Enhance Government-Backed Guarantees for Sole Traders
We broadly welcome the measures introduced under the Government’s Growth Guarantee Scheme.
To strike a balance between addressing business owners’ concerns and offering more access to financing, we are calling on the Government to:
- Broaden the Growth Guarantee Scheme and its guarantee provisions to accommodate loans issued to sole traders.
3. Develop Targeted Financial Education Programmes for Small Businesses
Many small businesses struggle with knowledge gaps around financing options, credit scoring, and eligibility criteria, leading to misperceptions and hesitancy towards borrowing. We welcome the launch of the Business Growth Service, which seeks to address this challenge and educate in critical areas. We hope this initiative will enhance small business financial literacy by:
- Targeting educational interventions at key lifecycle moments, such as company registration or annual tax filing deadlines.
- Signposting alternative funding options alongside tax guidance and compliance resources, ensuring small businesses know what financing tools are available.
- Partnering with industry to leverage expertise, share best practices and ensure understanding of the full range of financing options available.
4. Strengthen Lending Competition Through Regulatory Simplification
To support a thriving alternative lending market and SME access to finance, we recommend:
- Providing clear guidance to lenders for adhering to streamlined eligibility requirements while maintaining affordability safeguards for small businesses.
- Refining the Bank Referral Scheme to improve SME awareness and comprehension and include additional tech-based financing providers, injecting innovative small business financing solutions into the ecosystem.
5. Encourage Innovation in Low-Value Business Financing
Recognising the inherently risky landscape of small business financing, we recommend smoothing a pathway for products tailored to sole traders' specific needs, such as asset-focused loans or sales-linked advances. PayPal’s data-driven approach – analysing sales history rather than relying solely on traditional credit scoring – exemplifies the kind of innovation that can complement these emerging models and better serve sole traders and microbusinesses. Additional measures that the Government might consider could include:
- Accelerating the pathway for regulatory approvals to allow lenders to bring innovative products to market quickly.
- Embedding affordability metrics based on turnover or other indicators to ensure rates remain competitive and accessible.
- Providing a golden-source for turnover data for all businesses by refining the originally planned Companies House reforms – ensuring data is received but shared only with authorised parties rather than published publicly.
These actionable measures provide a robust framework to address existing barriers to small business financing and would help to unlock the full potential of British entrepreneurs. By implementing these steps, the UK Government can support small businesses in scaling up, driving innovation, and contributing to broader economic recovery and growth.
Building a Financial Ecosystem Tailored to the Needs of Small Businesses
The challenges facing UK small businesses demand decisive action from industry leaders and policymakers. The Government’s SME Strategy provides a strong foundation, and by addressing fundamental issues such as financing barriers – the UK can achieve the dynamic business environment envisioned in “Backing Your Business”.
PayPal is proud to contribute to this important initiative and stands ready to work with government and industry stakeholders to implement these actionable insights and drive small business growth across the UK.
To learn more, visit the UK government’s Call for Evidence on SME financing and PayPal’s Small Business Policy Call to Action.
1Backing Your Business: Our Plan for Small and Medium Sized Businesses; Department for Business and Trade; UK Government; 31 July 2025; p.14
2PayPal Working Capital internal data; 10/2014 to 07/2025
3PayPal Working Capital internal data; UK Net Promoter Score Survey; H1 2025
4Backing Your Business: Our Plan for Small and Medium Sized Businesses; Department for Business and Trade; UK Government; 31 July 2025; p. 8