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Data snack: Square ends 2021 as the top SMB digital lender by volume 

  • Square Loans closed 2021 at record small business loan origination levels - $2.5 billion - higher than its pre-pandemic volumes.
  • The fintech also inched ahead of rivals PayPal and OnDeck for the first time, making it a market leader in the digital SMB lending space.

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Data snack: Square ends 2021 as the top SMB digital lender by volume 

Square Loans, Block’s small business lending division, ended the year 2021 with $2.5 billion in loans originated - a new annual record - placing it ahead of rivals PayPal and OnDeck for the first time ever in the digital small lending space. 

The fintech’s record numbers compared to $1.8 billion of loans at both PayPal and OnDeck. Square was also the only one to have exceeded pre-pandemic loan origination volumes.

As shown in the chart below, Square historically trailed below PayPal and OnDeck’s SMB lending divisions, but gradually started to inch ahead in the first quarter of last year.

Square reported $850 million in loan originations in Q4 2021, its biggest quarter ever. 

The total of $2.5 billion recorded last year compared to only $1 billion generated in 2020, a relatively low figure versus previous years, as the pandemic caused most small business lenders to hit the brakes. 

OnDeck grew its SMB portfolio from $1.1 billion in 2020 to $1.8 billion a year later, while PayPal’s merchant lending division remained flat year-on-year at $1.8 billion.

The pandemic was a challenging time for SMB lenders, as the economic uncertainty manifested in the credit profile of lots of small businesses across the US. 

Many lenders retreated from the market, like OnDeck selling itself to Enova

Square recorded no originations in Q2 2020, while PayPal and OnDeck dramatically reduced their portfolios. PayPal went from a $4.7 billion merchant loan book in 2019 to close 2020 at just $1.8 billion.

But the pace seems to be picking up again, and the outlook remains favorable. With low delinquency rates, charge-offs at historic lows and negative loan loss provisions, lenders are optimistic about credit quality, according to Gita Thollesson, senior strategic business advisor at Q2.

Earlier this year, PayPal self proclaimed to be one of the nation’s top five small business lenders, with the vast majority of business coming from areas deserted by banks.

“Through our PayPal Working Capital product, we are now one of the top five lenders to small businesses in the United States, and 70 percent of those PayPal Working Capital loans are going into regions of the country where banks have pulled out, sometimes for good economic reasons,” said Franz Paasche, senior vice president and chief corporate affairs officer at PayPal in a McKinsey interview.

If that’s true, then that would make Square Loans and OnDeck market leaders as well, meaning that three digital-only lenders are among the country’s top five SMB lenders. 

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