NEW YORK (Reuters) - Payments firm PayPal Holdings Inc PYPL.O has agreed to acquire online lending company Swift Financial in a bid to expand its business that provides working capital to merchants.

FILE PHOTO: A Paypal employee holds photographs of herself during celebrations for the company's relisting on the Nasdaq in New York, July 20, 2015. REUTERS/Lucas Jackson/File Photo

The acquisition will allow PayPal to offer loans to the larger businesses that process payments through its platform and better provide credit to firms that are not yet users of its services, the company said on Thursday.

San Jose, California–based PayPal did not disclose terms of the deal, which is subject to regulatory approval.

Founded in 2006, Delaware-based Swift Financial extends credit to businesses through loans and advances.

PayPal has been offering short-term loans to its smaller merchants through a division called PayPal Working Capital since 2013. It uses data on the payments it processes for its merchants to assess their credit-worthiness.

The company has lent more than $3 billion to 115,000 small businesses in loans of up to $125,000 since inception.

The deal will enable PayPal to start offering term loans of up to $500,000 to its larger merchants and take advantage of Swift Financial’s data capabilities to lend to companies that may not be long-time users of its services.

“This is an area where customers have been asking for more,” Darrell Esch, vice president and commercial officer of global credit at PayPal, said in an interview.

Since breaking off from eBay Inc in 2015, PayPal has been expanding partnerships and acquiring new services to gain advantage over rivals in a highly competitive digital payments market.

Online lending, which took off after banks retreated from offering loans to small businesses and consumers in the wake of the 2007-2009 financial crisis, takes advantage of digital technologies to offer loans at lower costs.

Online lenders say they are better at servicing new types of e-commerce companies because their business models may not fit the established underwriting parameters used by traditional financial institutions such as banks.

Linda Lightman, chief executive of an online luxury consignment business she started from her home 17 years ago and a long-time PayPal user, secured a loan from it in June as the payments company launched its first loan product for larger businesses with Swift Financial.

“With a bank it is a much more elongated experience,” Lightman told Reuters. “For PayPal it was a day. They understand our business to begin with.”