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PayPal releases survey on small business loans

Yahoo Finance's Brian Sozzi speaks with PayPal Global Merchant Lending VP Bernardo Martinez about the current state of small businesses during the COVID-19 pandemic.

Video Transcript

BRIAN SOZZI: Bernardo, thanks for joining "Yahoo! Finance." Take us through the state of small businesses right now.

BERNARDO MARTINEZ: Thanks, Brian, for having me here. I think that when we look at small businesses-- we actually just conducted our recent survey, and what we have learned today is that, you know-- there's a few things.

Number one-- they're are actually a little bit optimistic of what sort of the new holidays is going to come from them. I think a lot of them are actually expecting that they're going to have a better results than they had pre-pandemic, like 3/4 of them. However, a lot of them also-- like, half of their small business owners-- are still conscious about what the pandemic may bring to the table because they still know there's a lot of things going on. But I would say, in general, I think that's an important point, that they're feeling optimistic about the future.

I think the second part that we learned in the survey is that, after the pandemic, we are seeing that a lot of them are actually more willing to apply for business loans. And that's one thing that was pretty interesting for me. To be specific, 70% of small business owners actually are saying to us they are willing to take those-- takes loans, and they're really specifically trying to invest in areas of online.

And to give you a little bit of a breakdown, just 38% are investing in marketing, social marketing, if you will. 33% are investing just in online presence. And 22% are really just trying to reach customers through new marketplaces. So in general, I started to see a more optimistic view of that small business, which I look forward to support in PayPal.

BRIAN SOZZI: Do you find it surprising that optimism exists and that you're hearing from small business owners that their business might be above pre-pandemic levels? There still are a lot of concerns facing small businesses in this country.

BERNARDO MARTINEZ: Yeah, I think, at the end-- I think it's surprising. You know, there's a lot of challenges ahead in the economy today, and not only in the US, but around the world. We keep hearing about hiring. We keep hearing about supply chains.

I think the reality is, when you compare it to what happen, like, a year ago or a year and a half ago when the whole pandemic started, I think a lot of them actually basically-- as a survival method, to be quite honest they just reinvent themselves, and they have started to see a lot of success around that.

So I think they're-- they're starting to feel that the worst is over, potentially, and they now have a good new sense of what the new business environment will look like for them and how they can actually change their business model. So I feel that's what I see in that survey that-- what we hear from them.

BRIAN SOZZI: How are their business models changing? What does the businesses look like today, compared to the pandemic? Are they, for example, back to hiring as fast as they were 2 and 1/2 years ago?

BERNARDO MARTINEZ: Yeah, so I think at the end, a lot of them are changing the way they do things. So if you look at-- if you were going to a restaurant, for example, a few years ago, some of them were not really having any delivery systems. They were not part of any other platforms that they do that. I think now it's pretty common that every restaurant have done that.

I think, secondly, they're also creating presences in online. And that's where it's one thing we're hearing them-- I mean, 1 and 1/2 of the businesses didn't have-- the business didn't have, actually, websites in the online world.

BRIAN SOZZI: It's hard to believe. That's hard to believe.

BERNARDO MARTINEZ: Hard to believe, but it's what's happening. So now they're really saying, well, I cannot be without it. And they're creating their new marketing channel acquisition and sort of a presence, in general, on online. And I think that's an important part that they're really going after. And I think it's interesting. So I think that's the difference from what you see pre-pandemic to post-pandemic.

BRIAN SOZZI: You mentioned that small businesses are out there-- they're looking for loans. They're looking for capital. Outside of marketing, where else are they putting this money to work?

BERNARDO MARTINEZ: I mean, we hear, like I said-- we said, when we said "online," there's, like, three components. So for example, if you are a retailer and you probably have shop in some of the marketplaces available that may be like, you know, Amazon or eBay or any of those, they may be starting to expand in another one, correct? So that actually creates a lot of investment from new [? tooling ?] that they have to create.

They're also-- they need to host a website. They have to create-- probably engage with an agency to really start doing social marketing. So I think they're really getting through that process. They're also preparing for an-- they're preparing, also, for hiring-- hiring the folks, if you will. So there is a lot of things going on investing. But I would say, in general, the topic that was a very loud and clear in the survey is that they're investing in the online presence across the different categories.

BRIAN SOZZI: If this group wants and they need that access to capital, when you talk to these small businesses, how concerned are they about higher interest rates next year? Is that even in their discussion at this moment?

BERNARDO MARTINEZ: I haven't heard about that topic, to be quite honest. I'm sure there's always some conversations around that, especially-- remember, like, the survey was done a couple of months ago. So the topic is probably more prevalent in the recent events that we're seeing with inflation.

But I think the reality-- they are-- I think they're still-- mostly the concern is around the pandemic and the new wave that the pandemic will bring to the table for them, and that creates some delays and some supply chain. So those are the two topics that we heard. But at the end, I didn't hear anything else around the other topics, around, like, inflation or interest rates.

BRIAN SOZZI: Are small businesses still having trouble finding the cash they need? Because we hear this from banks, that they are loaning money out to small businesses, but a lot of folks that we talked to-- they still say it's still-- it's still-- they're still having problems getting the money they need.

BERNARDO MARTINEZ: Yeah, Brian, I think the most interesting part I think, at the end of the day, is we learn from them they're really more willing to take loans, correct? But 3/4 of them are actually-- don't know how to start. They really don't know how to start to asking for loans.

And I think that's one of the critical issues that I would say, for us as a PayPal-- that we have a couple of programs for, supporting for capital access to small businesses-- we need to do a much better job helping understand what are the alternative they have available for them and how they can-- some of those alternatives will have better or worse for them, depending on what they're trying to do. So that's one item that we learn.

The other thing we learn-- is that a lot of them have a very-- and apprehension to apply. They think that, actually, they're not going to get approved, and they fear that rejection, that they're going to be impacting their Bureau reporting, and they don't want to do it. So some of them-- it's just-- they're afraid of the process. So I think, between not knowing how to start and having that fear of being rejected or not having the right documentation to get approved-- I think they're having a tough time for potentially starting some of the loans that they may want to take.

BRIAN SOZZI: How big is this lending business inside of a PayPal?

BERNARDO MARTINEZ: I mean, just to give you a perspective, we started our programs in 2013 with a program called PayPal Working Capital. We extended that in '17 with PayPal Business Loan. And we have done, since then, more than $20 billion in originations for small businesses. And we have more than a million loans. So we are pretty-- pretty happy to continue to support the small businesses.

We really believe that a small businesses are the key ingredient for success in the economy that we have in front of us. So we are-- will continue to be ready to expand our programs and continue to support them in the future.

BRIAN SOZZI: If one sees this, Bernardo, and they're curious-- they want to start their own small business in 2022, what's your best advice?

BERNARDO MARTINEZ: I think the best advice for small businesses is, number one, if you're planning to start-- which, actually, is happening quite a lot, if you look at business formation in the United States. It's actually skyrocketing right now.

Just think about-- think about how you're going to interact with your customer base. I think there is-- in the past, a typical restaurant or retailer had a very-- I would call it a very specific approach based on history. I will encourage them to start thinking about, what is sort of-- how you're going to [? meet ?] your [? prices ?] online. So think about that [INAUDIBLE]. And say, what do you need to do in order to reach your customer base? And really start looking for partners that can help you, not only in your sort of physical space, but also in the online space so you have a more holistic approach for your business. I think that's the critical component that no one in the 2022 can miss. Because without having an online presence, I think they're going to be missing a great opportunity to have a solid growth model for their businesses.

BRIAN SOZZI: All right, some good advice there. Bernardo Martinez, good to see you. Thanks so much for joining "Yahoo! Finance."

BERNARDO MARTINEZ: Thanks, Brian. It was great to have you and to be with you today. And I look forward to [INAUDIBLE] in the future.

BRIAN SOZZI: Appreciate it.