A small part of PayPal shows tech companies are capable of doing what banks used to do (PYPL)

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Since the 2008 financial crisis, a lot of regional community banks have shut down.

That's become a major problem for small business owners, who traditionally had difficulty borrowing from big mainstream banks and instead had to rely on community banks for financing options.

But the rise of tech companies with more cost-efficient lending services has made it possible for some small business owners to borrow money with much more ease, bypassing regular banks altogether.

PayPal is one of the tech companies engaged in the small business lending space. PayPal Working Capital, launched in September 2013, extends loans to merchants who use PayPal to accept payments. It creates loans based on metrics like sales data, and not the traditional credit score, while processing it much faster than most other bank loans.

And according to PayPal CEO Dan Schulman, PayPal Working Capital is already making an impact on small business owners. Schulman says about 3% of all the counties in the US have had 10 or more banks close branches in them, yet 25% of the PayPal Working Capital loans were extended to merchants from those counties.

“We’re actually replacing what used to be done by mainstream banking,” Schulman said at Business Insider’s Ignition conference. “We’ve made a difference to merchants for sure.”

PayPal’s loan service, although only a small part of the company's overall business, may have much more upside in the coming years once more small business owners learn about it.

According to BI Intelligence, more than half of the businesses generating less than $1 million in sales were not able to receive any financing, while a recent report by the US Small Business Administration said the number of community banks have cut in half over the last two decades.

PayPal recently announced that the firm has provided more than $1 billion in loans since its launch to more than 60,000 small businesses in the US, UK, and Australia. BI Intelligence estimates the loan amounts have more than quadrupled in the first 12 months of its launch.

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