Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Updated on Friday, December 14, 2018
Many small business owners who rely on PayPal to accept and make payments could also turn to the platform when in need of financing.
PayPal offers working capital loans to qualified business owners who use the service. The loan is based on PayPal sales and doesn’t require a credit check. The application process is simple and approved loans can be funded almost immediately.
If you already use PayPal, applying for a working capital loan could provide a quick, convenient solution to meet your funding needs. We’ll break down what you need to know about PayPal’s loan program before you start your application.
PayPal Working Capital loan details
PayPal offers two types of business loans: PayPal Business Loans and PayPal Working Capital loans. While the business loans program is similar to a traditional business loan with set payments and a credit check, PayPal’s working capital loans require no credit check and payments are drafted from your sales. Here, we’ll take a closer look at PayPal’s working capital offering.
Business owners can borrow up to 35% of their annual PayPal sales for a working capital loan. The maximum amount for your first PayPal loan is $125,000. The exact amount you receive in your PayPal account is dependent on how much in sales you collect through PayPal.
To pay back the loan, PayPal takes a percentage of your future sales. You would choose that percentage when you apply, and PayPal would make automatic deductions until the debt is paid off. You would make higher payments on days when your sales are higher, and you wouldn’t pay anything on days when you don’t have any PayPal sales.
However, PayPal would require you to pay at least 5% or 10% of your debt every 90 days to remain in good standing. You would also have the option to pay the loan in full without early repayment fees.
How much does it cost? PayPal charges a fixed fee that is based on the amount of your loan, your PayPal sales history and the repayment percentage that you selected. There are no additional fees or periodic interest. The higher the repayment percentage, the lower your overall cost of borrowing. See this sample repayment plan:
Example: A business with $100,000 in annual PayPal sales is seeking a $10,000 loan.
|Portion of sales repaid to PayPal||Percentage you keep||One-time fixed fee||Total loan|
Unlike a traditional bank loan or a credit card, PayPal Working Capital does not require a personal credit check or a personal guarantee. Applying for PayPal Working Capital is faster than applying for a bank loan, and you would see the money in your PayPal account in a shorter amount of time.
What businesses are eligible for PayPal Working Capital?
To be eligible for PayPal Working Capital, you must have a PayPal Business or Premier account for at least three months. To qualify for a Business account, you must process between $15,000 and $20 million in annual PayPal sales. You must process between $20,000 and $20 million in annual sales to qualify for a Premier account.
Premier and Business accounts are both best for sellers who get paid online and make online purchases. Premier is suited for casual sellers who receive payments through PayPal. Business accounts are recommended for merchants with an established company name. A Business account also allows up to 200 employees to have limited access to the account and comes with a customer service email address to handle customer issues.
Because PayPal does not approve borrowers based on business or personal credit scores, business owners with poor credit may be able to secure financing. If you’ve had trouble getting approved for a bank loan because of your credit, PayPal may be a solution.
The pros and cons of PayPal Working Capital
Fast time to funding. Once PayPal approves your application and you agree to all terms and conditions, your loan is automatically transferred into your PayPal account in a few minutes.
Credit score not deciding factor. PayPal determines your eligibility from your PayPal sales history rather than your personal or business credit. PayPal does not check your credit, so applying for a loan would not impact your score.
No penalty for paying early. Although PayPal automatically collects payments, you can make additional payments to clear your debt early without facing a fee. PayPal also won’t charge you a fee for paying back the loan in full.
Your fee isn’t set until you apply. You can use PayPal’s sample fee calculator to get an example of the fee you might owe with your loan. However, your actual fixed fee would depend on the information in your application. It may be difficult to compare PayPal Working Capital with other loan options without knowing your exact fee.
You still have to pay transaction fees. PayPal collects fees to process credit card transactions, which you would owe on top of your loan repayments. Online transactions through PayPal cost 2.9% of the transaction amount plus 30 cents, while in-store transactions cost 2.7% of the amount.
Paying early won’t save you money. The fixed loan fee that you owe won’t go down if you pay your loan off early.
Application process and requirements
To apply for PayPal Working Capital, you’ll need to provide basic information about your business and yourself, since you will be the authorized representative of the account. Your PayPal sales history is the most crucial piece of information to provide, as your loan amount is dependent on your transactions.
Some business owners may have to provide additional details, such as the contact information, birth dates and Social Security numbers of primary business owners and managers. PayPal won’t use the data to run a credit check, and those people would not have access to your account unless you authorize them.
When you apply, you will choose the percentage of each sale that PayPal will take as repayment. You cannot change your percentage once it goes into effect, so you should carefully consider how much you can afford to take out each payment.
The fine print
A lower repayment percentage means a higher loan fee. If you choose a lower percentage for PayPal to take out of each sale to repay the loan, the fixed fee on your loan will be higher. If you want to pay a lower fee, PayPal will take more out of each transaction as repayment. Paying a higher fee would allow you to keep more of your PayPal sales for your business, which would help you keep cash flow stable.
Payments start almost immediately. PayPal begins collecting automatic repayments 72 hours after you receive your loan, giving you three days to prepare for the regular deductions. PayPal takes its percentage as soon as a sale occurs.
You can’t add funds to your loan. If you need more funding, you would have to apply for another loan. You would not be able to add money to your existing PayPal Working Capital loan. PayPal issues loans one at a time, so you wouldn’t be eligible for another one until you paid off your existing balance.
There’s a minimum payment requirement. Even though PayPal doesn’t take a payment on days when you don’t make PayPal sales, you must pay 5% to 10% of your total loan amount every 90 days. If you don’t meet the minimum requirement, your loan could go into default and your entire balance could become due. Limits could also be placed on your PayPal account if you default.
Alternatives to PayPal Working Capital
If you don’t want to mix your PayPal sales with borrowing — or you’re a small business owner who doesn’t use PayPal — there are other ways to obtain a loan for your company.
Start with LendingTree
Consider starting with LendingTree. You simply fill out a short form and may receive up to five business loan offers from lenders. LendingTree’s online marketplace helps you find the best deal for your business by allowing you to compare multiple financing options in one place.ForwardLine
ForwardLine offers short-term and medium-term loans for small business owners. Terms range from six months to five years and you could borrow up to $500,000 to fund your working capital needs. Applying for a ForwardLine loan doesn’t impact your credit score and you could receive an approval decision instantly. If approved, you could see the money in your business bank account as soon as the next business day. ForwardLine requires just one year in business and annual sales over $100,000.Rapid Finance
Rapid Finance provides working capital loans, equipment loans and professional practice loans to small business owners. Rapid Finance’s online application process is simple and you could get approved in a few hours and receive funding in one day. You could borrow $5,000 to $1,000,000 and you would make scheduled daily payments to pay back the loan. Rapid Financerequires two years in business and monthly revenue of at least $5,000.
The bottom line
For business owners who rely on PayPal when making sales, PayPal Working Capital could be a useful option to obtain financing. Your volume of PayPal transactions would determine how much you could borrow. PayPal would automatically take a percentage of your future sales as repayment, so you wouldn’t have to worry about late or missed payments. However, you would have to keep enough money in your PayPal account to cover the payments. PayPal doesn’t consider personal or business credit when approving loans, making PayPal Working Capital an attractive financing option for business owners with less than perfect credit.