PayPal Working Capital: 2019 Review of PayPal Business Loans

Find out all you need to know about PayPal business loans with this guide.
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What is PayPal Working Capital?

PayPal Working Capital is a business loan for PayPal sellers that you can apply for in minutes and immediately access through your PayPal account. PayPal working capital loans are repaid, plus a fee, with 10% to 30% of your business’s daily PayPal sales. Through PayPal Working Capital, borrowers can qualify for up to 30% of their annual PayPal sales, with a maximum of $97,000 for the first loan.

PayPal Working Capital, as the name suggests, is for business owners who need working capital—that is, funds to cover the day-to-day functions of their business. From paying rent to covering payroll to paying for a new marketing strategy, the working capital that these PayPal business loans offer can help you keep your doors open.

PayPal business loans are one of several options for getting funds to keep your business growing. Find out if PayPal Working Capital is right for you, the cost and terms of the loan, and the best alternatives to consider when loan shopping.

Working Capital and Working Capital Loans Explained

Before we get into the specifics of PayPal Working Capital, let’s cover the basics of working capital (and working capital loans) in general.

Working capital is one measure of a business’s efficiency and financial health. Technically, it’s the capital you have left over when you subtract the value of all your liabilities from the value of all your current assets.

Having enough working capital on hand means that you can cover the day-to-day short-term costs of running a business. This means that your working capital could go towards your rent payments, your payroll, general office costs, weekly or monthly business loan payments, and so on. Finding your working capital is as simple as subtracting your current business liabilities from your current business assets.

If you don’t have working capital—or if you have negative working capital (more debts than assets)—you’ll be struggling to get by. Companies that are highly seasonal or have cyclical sales cycles tend to struggle with working capital because they don’t have regular income.

If your business is struggling with working capital or if you need more capital to reach your business goals, consider applying for a working capital loan. A working capital loan is similar to other types of business loans. A business owner borrows money from a lender, uses that money for their business, and pays the lender back over an agreed amount time period—with interest or fees on top.

Many lenders—both traditional and alternative—offer working capital loans, and PayPal Working Capital is just one of the many options out there. Is it the best option for your business? Let’s dig into the details with a PayPal Working Capital review.


PayPal Working Capital: How It Works

The PayPal Working Capital program offers small business loans to businesses with a strong history of PayPal sales. As a result, you must be a PayPal merchant to access these PayPal business loans.

Through PayPal Working Capital, you can apply to borrow an amount that’s up to 30% of your last 12 months of PayPal sales—capped at $97,000 for your first PayPal business loan and at $125,000 for subsequent loans.

To pay back a PayPal working capital loan, you choose a percentage that PayPal automatically deducts from your merchant account every time you process a sale. Based on that repayment percentage and your PayPal sales history, PayPal will charge a one-time fee on top of the loan amount. The total amount you are responsible for repaying is the original PayPal business loan amount plus the fee.

Be sure to note, though: Even though this is a PayPal branded business loan, PayPal itself doesn’t directly lend the money or even evaluate your application. PayPal’s lender partner WebBank is the one who actually determines if you qualify and ultimately issues the PayPal business loan.

PayPal Working Capital Eligibility

PayPal working capital loans are relatively simple to qualify for if you are already a fairly active PayPal merchant. You just need to have a PayPal business or premium account for at least three months and a minimum of $15,000 (for business account holders) or $20,000 (for premium account holders) in annual PayPal sales.

PayPal Working Capital doesn’t require a credit check or credit history, so it’s an option business owners who need to improve their credit. Whereas your credit score is extremely important for bank loans, SBA loans, and medium-term loans, it’s not at all a factor in a PayPal working capital loan. Instead of using your credit score to determine your eligibility, PayPal relies on your sales history to determine if they’ll work with you.

PayPal Business Loan Amounts, Rates, Fees, and Repayment

In order to compare this type of PayPal business loan to your other options, you need to know the specific loan amounts, repayment structure, rates, and fees to expect.

Here are the details about PayPal Working Capital.

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PayPal Working Capital Amounts

The amount you receive from a PayPal Working Capital is dependent on the total amount of sales you bring in through your PayPal merchant account annually.

PayPal Working Capital will only offer up to 30% of your PayPal annual sales. The limit for your first loan is $97,000.

For example, let’s say you process $100,000 of annual sales in your PayPal account. The largest PayPal working capital loan you would be eligible for initially is $30,000. This isn’t to say that you would need to take the full $30,000. You could take a smaller amount if that’s all you needed.

After paying off the first loan, you can apply for another loan. After the first loan, loan amounts are still limited to 30% of annual sales, but the maximum amount goes up to $125,000.

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PayPal Working Capital Rates and Fees

PayPal charges a fixed fee for its working capital loans. The fee is determined by three things: the size of the loan, the repayment percentage you select, and your history of PayPal sales.

paypal-business-loan-fee-breakdown

If you choose to repay your PayPal business loan faster—by selecting a larger percentage of your sales to go towards repayment—the fee will be lower. And if you have a strong history of high volume PayPal sales, again, you’ll pay a smaller fixed fee. This is because a higher volume translates to faster repayment. And, if you have a solid history of strong PayPal account sales, PayPal has reason to believe that you have a low risk of defaulting on the loan.

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PayPal Working Capital Estimated Fees for Sample Loan

PayPal has a fee estimator on their website. To get a sense of what your fee would be, you can input your annual PayPal sales and your desired PayPal working capital loan amount. Here’s an example of estimated fees.

  • Annual PayPal Sales Volume: $100,000
  • Desired Loan Amount: $25,000

Take a look at the breakdown of PayPal working capital loan fees and total amount repaid based on what your repayment percentage will be:

  • Repayment percentage: 30% (you keep 70% of sales)
  • Repayment Fee: $3,079
  • Total to be repaid (fee + loan amount): $28,079

Versus:

  • Repayment percentage: 15% (you keep 85% of sales)
  • Repayment Fee: $7,456
  • Total to be repaid (fee + loan amount): $32,456

Versus:

  • Repayment percentage: 10% (you keep 90% of sales)
  • Repayment Fee: $14,524
  • Total to be repaid (fee + loan amount): $39,524
As you can see from the information above, the fee gets significantly steeper as you choose less and less aggressive repayment percentages and hold on to more of your PayPal sales revenue. These are the only PayPal Working Capital fees—there aren’t any late fees or origination fees to worry about.
Keep in mind that a PayPal working capital loan is not a traditional amortizing loan. With an amortizing loan, you gradually pay off the loan with periodic payments going towards interest and principal. Over time, the amount you’re paying in interest decreases and you begin to make a stronger dent in the principle. With PayPal Working Capital, the fee is determined at the outset and doesn’t change no matter how quickly you pay back the loan.

For instance, if you come into some extra cash after receiving your loan funds and decide to pay the loan back sooner, you can do so without an early prepayment penalty. However, you won’t save any money by paying early because your fee stays the same once you select your repayment percentage during the loan application.

Since PayPal business loans aren’t amortizing, it’s difficult to interpret the cost of PayPal Working Capital in terms of a traditional annual percentage rate (APR). Instead, it’s better to think about PayPal Working Capital in terms of what the money will enable you to accomplish. If you will be able to achieve significant growth in your business as a result of the loan, then it may be beneficial to have it.

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PayPal Working Capital Repayment

With a PayPal working capital loan, you’ll choose a percentage (between 10% to 30%) of your daily credit and debit card sales that come through PayPal to allocate towards repayment. PayPal automatically deducts these payments for you. It’s important to note that once you’ve chosen this percentage, you can’t change it during the lifetime of your PayPal business loan.

The bigger slice of sales you offer in repayment, the lower your fee will be and the faster you’ll repay the PayPal business loan and have it off your books.

On days you make no sales, PayPal won’t deduct from your account. However, there is a minimum requirement to pay back at least 5% to 10% of your total loan amount every 90 days to keep your PayPal working capital loan in good standing. The 5% applies to loans that are estimated to be paid back in more than one year. The 10% is for loans that will be paid back within one year.

After the close of each day that sales post to your PayPal account, PayPal will notify you of the repayment amount by multiplying the repayment percentage by the volume of sales you brought in that day. You should ensure that you keep enough money in the account to cover the payment because PayPal will automatically deduct it. If there aren’t enough funds in your account, PayPal will deduct “catch up payments” the next time you do have money in your account. Be careful here because catch up payments can only account for a maximum of 50% of your loan balance.

Let’s look at this in action.

sample-paypal-business-loan-repayment

Say you have $50,000 in annual PayPal Sales and are borrowing $10,000. You agree to having 20% of your daily PayPal sales go towards your working capital loan repayment. This brings your loan fee to $1,529 and your total repayment obligation to $10,000+$1,529 = $11,529. It’s estimated that you’ll pay back the loan in four months.

If you bring in $800 of sales in one day, PayPal will automatically deduct $160 (20%) to go towards repayment of your PayPal working capital loan, and $640 of the sales would remain in your PayPal seller account. If you make no sales on the second day, PayPal won’t take anything from your account that day. And if you make only $500 on the third day, it’s the same percentage: $100 would go towards repayment of the PayPal.com Working Capital loan, and $400 would stay in your account.

But remember—you have to make a minimum payment of 10% every 90 days. That’s 10% of the total loan obligation of $11,529, or $1,152.90. Fortunately, most borrowers find that their regular payments more than make up for this minimum payment requirement. If you aren’t able to make the minimum payments, however, your PayPal working capital loan could go into default and your account will be restricted.

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Does PayPal Working Capital Report to Credit Bureaus?

PayPal Working Capital does not report to personal credit bureaus like Experian or business credit bureaus like Dun & Bradstreet. This is a downside for most entrepreneurs. This means that responsible repayment on PayPal working capital loans won’t help to boost credit. That said, responsible repayment can boost your chances of accessing another PayPal working capital loan—and perhaps one with better terms.

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Is a PayPal Working Capital Loan the Same as a Merchant Cash Advance?

The repayment structure of a PayPal working capital loan is a lot like a merchant cash advance (the difference being that PayPal doesn’t purchase the right to your future receivables). A merchant cash advance is a lump sum payment that a merchant cash advance companies makes to a business, and they charge a fee. The business pays back the advance and fee with a fixed percentage of their daily credit and debit card sales.

Aside from the fact that PayPal is not purchasing your receivables, the other major difference between PayPal Working Capital and merchant cash advances is cost. PayPal is typically far less expensive than a traditional merchant cash advance, particularly if you choose a high repayment percentage.


PayPal Working Capital: How to Apply

A PayPal small business loan application is very simple. It’s just one application, which can be accessed through your PayPal account. There are four parts to the application that PayPal will walk you through.

First, you’ll need to verify your identify, your business’s location, and a little bit of financial information. PayPal will prefill most of this information based on data that’s already in your PayPal account. You’ll know whether you’ve been approved or denied right after you verify the information.

Second, you’ll be asked to specify how much you want to borrow and your repayment percentage. Based on your choices, PayPal will show you the estimated time it will take to repay the loan. Third, you’ll review the terms of your loan. Last, PayPal’s partner lender WebBank will deposit the funds into your PayPal account. They will be available for use immediately.


Denied for PayPal Working Capital? What Might Have Happened

After applying, PayPal might decline your application for various reasons. These are the top five reasons that business owners’ applications for a PayPal working capital loan is declined.

  1. You don’t meet the basic requirements. Maybe you don’t have at least three months of PayPal sales history or don’t have the minimum sales volume.
  2. The loan amount you’re seeking is too high relative to your sales volume.
  3. There are too many customer returns or disputes on your PayPal history.
  4. There was a bug in the PayPal Working Capital algorithm.
  5. You had trouble paying back a previous PayPal business loan.

First, make sure that the information you submitted is correct. Oftentimes, an error or denial comes from incorrect business information.

To apply again for PayPal Working Capital, wait three days before trying again. Waiting three days will give the PayPal Working Capital algorithm time to process the reason for the denial. Waiting three days will also give the algorithm time to process the status of your old PayPal business loan (if you had one previously). Because PayPal doesn’t pull your credit during the application process, you don’t have to worry about multiple applications affecting your credit score as it does with traditional loans.


PayPal Business Loans: The Advantages and Disadvantages

PayPal Business Loans: The Advantages

Like all small business loans, there are advantages (and disadvantages) to using PayPal Working Capital. Let’s start with the pros.

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Fast Application

The application process for a PayPal working capital loan is very fast. You can apply in minutes from your PayPal account page. If PayPal approves your application, they will transfer funds to your account in minutes. There are other quick business loans out there, but this is one of the fastest options.

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Easy to Qualify For

PayPal business loans can be easier to qualify for than other loans. If you do a decent amount of sales through PayPal, then you have a good shot at approval for a PayPal loan. The traditional small business loan requirements—like time in business, annual revenue, credit scores, profitability, etc.—don’t come into play for a PayPal.com working capital loan.

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Low Rates Compared to Other Short-Term Lenders

Compared to other short term business loans, PayPal is quite affordable. They don’t charge too steep a fee on top of the loan—especially if you have a strong PayPal sales history and choose to pay off your loan with an aggressive percentage of your sales.

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Easy Repayment

One of the best aspects of PayPal Working Capital is the ease of the repayment structure. When you apply and are approved, PayPal automatically syncs to your PayPal merchant account. PayPal will automatically deduct the agreed upon percentage from your PayPal account at the close of each day that sales post to your account. There’s no need for you to have to remember to make your loan payments (though you can opt to make manual payments if you choose). This makes PayPal a totally hands-off repayment experience.

PayPal Business Loans: The Disadvantages

Like all small business loans, there are disadvantages to using PayPal Working Capital. It’s important to weigh these fully before taking on a PayPal working capital loan over another option.

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Could Get Expensive

While PayPal Working Capital can be cheap, it isn’t always cheap. Based on the information given on their website, PayPal could charge anywhere between $0.01 and $0.58 in fees for every $1.00 you borrow. Getting a fee on the higher end of that spectrum might not be affordable for your business. Before you take an offer for a PayPal business loan, compare your options to know what’s available for your business.

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Cuts Into Cash Flow

Just like a merchant cash advance, PayPal Working Capital deducts the same percentage of sales every day. This can be a double-edged sword. On the days you have very few PayPal sales, PayPal just takes less from your account. But on days when business is booming, PayPal will end up taking much more. This can really cut into your cash flow. Plus, PayPal doesn’t give you the flexibility to adjust the repayment percentage over the lifetime of your loan. You choose the percentage when you apply, and you’re locked in.

If you withdraw funds before PayPal can deduct your payment, they’ll take catch up payments next time your account has funds. These catch up payments can also disrupt regular cash flow.

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No Prepayment Incentive

There is no incentive to repay your loan earlier if you can. PayPal won’t penalize you for this, but you also don’t save on interest or fees by paying early, unlike amortizing small business loans.

 

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Small Loan Amounts

PayPal business loans are relatively small loans with short repayment terms. No matter how much volume you’re processing on PayPal, you’re limited to $97,000 for the first loan and $125,000 for subsequent loans. And you can’t have more than one loan at a time. If you need more working capital, PayPal might not be a good fit for your business loan needs.


Top PayPal Working Capital Alternatives

There are a variety of reasons why PayPal Working Capital may not be the right funding option for you. If you’re not a PayPal seller, are looking for a larger business loan, or want a different repayment structure, there are some good alternatives you should consider beyond PayPal business loans.

Here are some good alternatives to PayPal working capital loans.

1. OnDeck

OnDeck Capital offers a similar option to working capital in the form of a more traditional business loan. Instead of advancing you a certain amount of money that you pay back with a portion of your daily sales, OnDeck offers a short-term business loan. It’s available to all types of businesses, not just PayPal sellers.

They’ll go a little higher in loan amounts (ranging from $5,000 to $250,000), and will extend terms a little longer than PayPal (ranging from 3 to 24 months).

OnDeck is a little bit costlier than PayPal Working Capital, however. Their business model is about making capital accessible for borrowers who wouldn’t qualify for a better product (like SBA loansmedium-term loans, or longer-term lines of credit, so they can charge higher interest rates.

APRs on OnDeck loans can range from 8.5% to 79%. OnDeck also offers a less costly short-term line of credit, but that’s a little harder to qualify for.

Read more OnDeck Reviews.

2. Kabbage

Kabbage offers a short term line of credit that specifically designed to provide working capital for small businesses. The use of funds, time frame, and loan amounts make Kabbage products pretty similar to that of PayPal.com’s.

Kabbage offers lines of credit from $2,000 to $150,000 over 6- or 12month terms. A line of credit is different from a business loan or advance because the lender gives you a maximum amount of money that you can draw on as needed. Kabbage charges a flat monthly fee of somewhere between 1.5% to 10% of the amount of money that you draw.

While Kabbage will look at your bank statements, time in business, and other financial documents to see what you qualify for, they don’t set a minimum personal credit score required to apply (although your credit will factor into your eligibility). So as far as small business lenders go, Kabbage is a fairly accessible option.

Read more Kabbage reviews.

3. Small Business Credit Cards

Business owners who apply for PayPal Working Capital are seeking short term working capital. The average small business pays back a PayPal business loan in a few months. This time frame syncs up nicely with business credit cards, many of which offer an introductory 0% APR for the first 9 to 15 months, which means you don’t pay any interest on the money during that time! After that, the interest rate will vary with the market. The average APR for small business credit cards is just around 14%, lower than PayPal Working Capital.

While business credit cards are a great alternative for short term funding, the catch is that they typically have a lower spending limit than you can get with a product like PayPal Working Capital. However, if you just want to borrow a small amount of working capital, then business credit cards may very well be ideal for you.

Business credit cards also offer more flexibility—it’s like a line of credit, so you only have to use and pay interest on the amount you need, and you can adjust your spending as needed. Many business cards also let you set up autopay from your business bank account. making repayment as painless as PayPal Working Capital.

Find out the best business credit cards of 2019.


Is PayPal Working Capital Right for You?

After reading the PayPal Working Capital review, you’re probably wondering whether or not this option is really right for your business. Well, for some businesses, it is.

PayPal Working Capital lends over a very fast timeline. Plus, if you want a business loan without a credit check (which are few and far between), then this might be the option for you.

However, you’ll have to be a doing a fair amount of sales on PayPal to qualify—and your business might not be there yet. Or, if you want a more flexible business loan solution, PayPal Working Capital might not be the best fit.

And if you have a stronger credit score, are bringing in a good amount of revenue, and have a few years of business under your belt, you might qualify for better options than what PayPal business loans can offer.

As always, it’s crucial that small business owners check all of their options before committing to one financing option.

With dozens of small business loan options available, how can you tell if you should choose a PayPal business loan over another type of business loan? PayPal Working Capital works well in the following scenarios:

  • You process lots of sales through PayPal
  • You need a business loan very quickly
  • You need a fairly small amount of working capital for general operational expenses (not a major acquisition or business expense)
  • You don’t qualify for other, less expensive options
See What Business Loans You Qualify For