PayPal Working Capital Review: Large Loans for PayPal Merchants

PayPal Working Capital Review: Large Loans for PayPal Merchants

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PayPal's Working Capital loans are among the easiest funds your business can qualify for, and it makes loans available faster than any other lender we've seen. However, while it is easy to get approved, you need to be a PayPal merchant to be eligible to apply in the first place. Loans are quite large, capping off at $200,000, which immediately makes this one of the largest loans with such lenient requirements. However, PayPal's Working Capital has significantly higher fees and interest rates than other lenders. If you're less concerned about getting funds fast or you have an established business with a great personal credit score, we recommend you consider other options.

Eligibility and Application Speed

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PayPal's Working Capital loan is among the easiest to qualify for, given that you meet some basic requirements. Applicants need either a 3-month-old PayPal Business account with $15,000 in annual sales or a 3-month-old Premier PayPal account with $20,000 in sales. These revenue requirements are one of the lowest among online lenders. Most online lenders require a company to be in business for at least a few years and demonstrate annual revenue of at least $100,000.

If you meet PayPal's basic requirements, you should be relieved to see that not only does PayPal not require a minimum credit score; PayPal also don't require personal collateral on the loan. This is quite rare, as most online lenders require you to have a minimum credit score of at least 620 and have collateral guaranteed.

This is hands down the best lending option for people who need working capital fast. PayPal provides one of the fastest funding decisions we've seen, as you can apply and have your funds within minutes. By comparison, most other online lenders will require at least 24 hours before extending you the loan. Traditional lenders are slower yet, with underwriting taking days or weeks. PayPal's application is easy and straightforward. This is largely because PayPal already has a lot of information about your business and its cash flows.

One thing to keep in mind before you apply: Don't assume guaranteed approval. We've seen reports of some borrowers who are denied PayPal's Working Capital loans despite claiming to meet all the eligibility criteria.

PayPal's Working Capital Loans Features

PayPal's Working Capital
Market average
Loan Size$1,000 - $200,000$0 - $200,000
Qualification criteriaNo minimum personal credit score, $15,000 minimum annual sales for Business or $20,000 in annual sales for Premier accounts, at least 3 months of active accounts620 minimum personal credit score, $100,000 in annual revenue, one year in operation
Time to get fundsSame dayAt least one business day
Cost per dollar borrowed$1.04 - $1.55$1.08 - $1.40
Loan term lengthUp to 12 months0 - 12 months
Repayment optionsA percentage of each PayPal sale, with a minimum payment 90 daysWeekly or monthly
FeesFixed loan fee: VariesOrigination fees, late fees, varying interest fees

PayPal's Working Capital Loan Amounts

One of the major things we like about PayPal's Working Capital loans is the actual size of the loans. They can be as large as $200,000. Other lenders typically offer working capital loans of around $200,000. However, note that PayPal typically lends 18% of your past year's sales. So in order to hit that limit, borrowers would need more than $1 million in annual revenue. The downside to PayPal's fast application and funding process is that there isn't as much room for loan term negotiation as you might find with a traditional lender. In traditional situations, the application process would likely be longer, more personal and more qualitative. Additionally, borrowers are limited to $125,000 loans for the first PayPal loan, which is still sizable compared to other online lenders with similar eligibility requirements.

Cost per dollar borrowed and repayment: PayPal's Working Capital loan's weakest point is its high cost per dollar borrowed, as the cost range is $1.04 - $1.55. PayPal has pretty lenient requirements to qualify, and its high interest rates reflect that risk. PayPal almost does a good job of simplifying its rates by using only one fixed fee. However, its cost per dollar borrowed can be a bit tricky to understand, given how repayments are tied to individual PayPal sales. We get into more detail on it below.

Lenders with similar loan size amounts like Fundation will have better costs per dollar borrowed, but the requirements are stricter as the lender does require personal credit scores and collateral.

One strength of PayPal is that it has a more flexible repayment plan than most lenders. Borrowers choose the percentage (10% to 30%) of their daily PayPal sales to allocate toward repayment. The higher the percentage, the lower the total fees. If borrowers are unable to keep up with loan payments, PayPal will allow borrowers to defer payments without late fees. Businesses that can afford the higher end of the repayment percentage will benefit from the PayPal's Working Capital loan more than others.

Term length and prepayment: PayPal only dictates that all loans be paid off within 18 months, and most borrowers pay this off within a year. Borrowers can pay off their loans earlier, but PayPal doesn't waive any remaining fees. In other words, borrowers have the flexibility to define their own term lengths as long as it is within 18 months, but they won't have any prepayment discounts.

PayPal's Working Capital Fees Explained

PayPal only charges a single fee on top of the principal balance that needs to be repaid. Borrowers choose the amount they'd like to loan out as well as the single interest fixed fee they pay. The higher the fee you choose to pay, the lower the total repaid. On a sample $8,000 loan for a business that processes $100,000 in annual PayPal sales, there is a $655 reduction in loan fees if the business chooses to pay 30% of its daily sales rather than 10%.

PayPal's Working Capital Application Process
PayPal's Working Capital Application Process

How Does PayPal Compare to Other Lenders?

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While PayPal's Working Capital loans have their benefits, you may be looking for a different loan product or to borrow larger amounts from top competitors.

PayPal's Working Capital vs Kabbage

on Kabbage's secure website
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Kabbage is easier to apply for, as PayPal requires special PayPal accounts. In all other eligibility aspects, the two are quite similar. While PayPal's Working Capital loan is technically a term loan, Kabbage offers a shorter-term business line of credit. Kabbage is slightly smaller in size as it offers lines of credit up to $150,000. However, it will be tough to obtain loans of the maximum size from either lender. The biggest difference comes from the relative costs per dollar borrowed, as Kabbage's limit can go as high as $150,000. So we recommend that if borrowers are PayPal merchants, they go with PayPal's Working Capital loan.

PayPal's Working Capital vs Square Capital

on Square's secure website
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Similar to PayPal, Square isn't necessarily a lender but provides small-business loans for customers who use its platform. Also similar to PayPal, Square has relatively lenient eligibility requirements and qualifies borrowers mostly on their sales transactions through Square. We recommend PayPal over Square in this case, as they both have similar costs per dollar but PayPal offers significantly larger loans. Ultimately, however, this will depend on which platform you process transactions through.

PayPal's Working Capital vs Traditional Lenders

Traditional lenders are often the ideal choice for small-business loans. They typically provide the lowest rates and fees, have the most flexibility in determining loan size and term, and also provide various types of loans—whereas online lenders usually only provide one or two. However, qualifying for a loan from a traditional lender is tough. One of the biggest reasons they have such low rates and fees is that they are very selective with their applications. Therefore, traditional banks assume the lowest levels of risk. Borrowers with the strongest profiles may find the PayPal's Working Capital loan's cost per dollar borrowed similar to that of a traditional lender, but most borrowers would not be able to qualify for PayPal's lowest rates. PayPal really excels compared to traditional lenders when it comes to low eligibility requirements and speed of funding. If you are a PayPal merchant who can't yet qualify for a loan with a traditional lender but can qualify for rates on the lower end of the spectrum with PayPal, we definitely recommend applying for PayPal.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.