PayPal offers working capital loans for its small business merchants. Working capital is any business capital used in daily expenses and is calculated as the difference between a business’s current liabilities and current assets. If you are unable to get a loan from traditional lenders and your business processes a majority of its sales through PayPal, you should consider a PayPal Working Capital loan.
- Review: Is a Working Capital Loan Worth It?
- Working Capital Loan Features
- Application Process
- How Does PayPal Compare to Other Lenders?
PayPal offers small business working capital loans for amounts up to 18% of the PayPal sales your business made in the past year, up to a maximum of $97,000. While PayPal loans are more expensive than loans from traditional lenders, PayPal can deposit your funds quickly and does not have strict eligibility requirements.
To qualify, you need a PayPal business or premier account for at least three months and your business must have processed at least $20,000 in sales through PayPal in the past year for premier accounts or $15,000 for business accounts. PayPal does not check your credit score, and it doesn’t require a personal guarantee. Overall, this loan is good for PayPal merchants with steady sales and high account balances.
|Good for...||Bad for...|
If you need to borrow more than 18% of your sales or more than $97,000, then a PayPal Working Capital loan won’t work for your business. You also can’t take out another loan while you already have one—you must wait three days after you finish repaying. However, there is one benefit to taking out consecutive loans: PayPal bases the amount you can borrow on past sales, so you can borrow more as your business establishes a stronger sales history. Businesses that don’t make most their sales through PayPal or have seasonal sales patterns may not get approved.
Because PayPal doesn’t require repayment on days you don’t have sales, it’s a good option for businesses that otherwise couldn’t afford daily payments. You will choose a fixed percentage between 10-30% of your daily PayPal sales for repayment. Even though you don’t make payments on days you don’t have sales, you must repay at least 10% of the loan plus a fixed fee every 90 days. You will be notified of the daily payment amount when sales close for the day. Since PayPal automatically withdraws that amount the following day, you should ensure that your balance is at least that amount.
If you don’t have enough money in your account, PayPal can take catch-up payments until your payments are back on schedule. Unlike other lenders, PayPal doesn’t charge late payment fees, but it will collect catch-up payments whenever it sees fit. While you do have the flexibility to choose the fixed percentage you pay back, falling behind on your payments can lead to complicated catch-up schedules. This can impact your business by restricting the amount you can withdraw from your PayPal account.
PayPal Working Capital loans have only one fixed loan fee, which increases as the loan amount increases. However, if you choose a higher fixed percentage for repayment, the loan fee will decrease. This benefits businesses with high gross margins that can afford higher fixed percentage payments.
You can receive funds in less than a minute, since PayPal can deposit directly into your PayPal account. This processing speed translates to higher APRs between 15-30%, but you can view the APR before you accept the loan offer.
If you default on a PayPal Working Capital loan, PayPal will debit your bank account or credit card to make your payments. The following scenarios could lead to defaults and account restrictions:
- The sum of your catch-up payments after a month is more than half of the balance you owe (i.e., you have $6,000 in uncollected payments due and you still have to repay a total of $10,000).
- You miss the 10% minimum payment plus fee that must be collected every 90 days.
- You stop using PayPal to process payments, which PayPal may interpret as an attempt to avoid making payments.
PayPal does not list APRs on its website, but you can estimate your APR in three steps. First, determine the fraction of a year (in months) it takes to repay your loan. Next, find the inverse of this fraction. Then, multiply the inverse by the loan fee percentage to find the APR.
For example, if it takes you 10 months to repay your loan amount (which is 10/12 of the year), the inverse is 12/10 or 1.2. Let’s say your fixed fee is 20%. If you multiply 1.2 by 20%, your APR will be 24%. There is no set term for the loan, but you will need repay the entire amount within 18 months. On average, clients repay the loan within a year.
How Do I Qualify for a PayPal Working Capital Loan?
Loan Amount Range
|$1,000 - $97,000|
|15.00% - 30.00%|
|Fixed loan fee: Varies|
|Up to 18 months|
You can access the loan application through your PayPal account. Because PayPal already has most of your information, you can get a decision within minutes. After getting approved, you can choose the amount you want to borrow and the fixed percentage that you would like to pay back every day. In the sample below, the higher fixed percentages come with lower loan fees. 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%.
In some cases, you can get funds within a minute after getting approval. However, PayPal can deny you if your sales do not meet the minimum requirements or the company sees that many customers are returning your products. Users also complain about poor customer service and technical errors in the automation system that can sometimes accidentally reject a loan application.
While PayPal Working Capital loans have their benefits, you may be looking for a different loan product or to borrow larger amounts from top competitors.
If your business needs flexible funding, Kabbage is a better option than PayPal, as it offers lines of credit. Kabbage offers a line of credit up to $150,000 for 6- and 12-month terms. Like PayPal, Kabbage has few eligibility requirements—there is no minimum credit score required and your business must be one year old with $50,000 in annual revenue to qualify for up to $100,000, making Kabbage a good choice for business owners with lower credit scores. Businesses can qualify for up to $150,000 if they have been around for three years with $500,000 in annual revenue.
If your business makes most of its sales by credit card and you have a lower credit score, a merchant cash advance from CAN Capital is a better option than a PayPal Working Capital loan. PayPal Working Capital loans and merchant cash advances from CAN Capital work in similar ways. CAN Capital will lend you between $5,000-150,000 in exchange for a set percentage of your future credit card sales. CAN Capital only requires a minimum credit score of 550, but it has high APRs.
Traditional bank loans are often great choices since they typically offer the lowest APRs and can help build business credit. However, it can be difficult for small businesses to qualify for a bank loan due the eligibility requirements. Banks can also take several weeks to process the application and fund your bank account. If you are a PayPal merchant who cannot qualify for a bank loan, then PayPal Working Capital is the better option.