Understanding Your PayPal Working Capital Loan Offer

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paypal working capital loan

For PayPal sellers, PayPal Working Capital (PPWC) is hands-down the easiest way to borrow working capital for your business. Barring rejection, borrowers can complete the whole application process and receive their funds in a few minutes.

But is an offer from PayPal Working Capital a good deal? And is it the best offer for your business? In this article, we go over everything you need to understand PayPal Working Capital and decide if it’s the right loan for your business.

PayPal Working Capital Basics

PayPal provides a fairly thorough video rundown on their website:

Users with a business or premier PayPal account that is at least three months old might be eligible for PayPal Working Capital if they have processed at least $15K (for business accounts) or $20K (for premier accounts). PayPal does not check your credit score.

If you meet those requirements, you have a good shot at being approved for a Working Capital loan. However, PayPal analyzes many business factors on your account in addition to those—such as payment processing consistency and chargebacks—which might affect your ability to get a loan.

Assuming you’re approved for funds, PayPal will let you customize your loan offer in a couple different ways: you can choose your borrowing amount and your repayment percentage. 

In total, you can borrow up to 25% of your annual PayPal sales. For example, if you made $200K in the last year, you would be eligible for a maximum of $50K. The most you can borrow for your first loan is $97K, and the maximum for subsequent loans is $125K, but you’ll only be eligible for that much money if you have a fair amount of annual sales.

In addition to choosing your borrowing amount, you get to choose your repayment percentage. You can choose to have between 10% – 30% of every sale go toward repaying your loan. Obviously, the larger the percentage, the faster you’ll repay your loan. Regardless, PPWC differs from traditional loans because your payments will fluctuate with your cash flow—you don’t have to worry about repaying more than you’re currently making.

The borrowing amount and repayment percentage you choose will have an affect on the fixed fee that you are charged. Higher borrowing amounts (relative to your annual sales) and lower repayment percentages translate to higher fees. 

Here are a couple examples using PayPal’s sample fee calculator to show how your borrowing amount and repayment percentage affects your fee.

A borrowing amount of 12.5% of this seller’s annual sales.

A borrowing amount of 25% of this borrower’s annual sales.

Obviously, a loan with a low repayment percentage has a higher fee than a loan with a high repayment percentage. Overall, the fee for a loan with a lower borrowing amount is also lower. In the first example, the fee for borrowing at a 30% repayment rate is about 5.6% of the borrowing amount. In the second example, the fee for borrowing at a 30% repayment rate is about 12.3% of the borrowing amount.

According to the sample repayment calculator, your fee could vary anywhere from 1% to 58% of the borrowing amount, depending on the amount of money you’re borrowing, your annual PayPal sales, and your repayment percentage. Unlike traditional interest, your fee is pre-determined before you borrow and does not accrue.

A percentage of your profits are deducted from your account at the end of each business day to go toward repayment. Although there is no set date on which you have to repay your loan, you do have to repay in a maximum of 18 months. Additionally, you have to repay at least 10% of your loan every 90 days.

Here’s an example of how a loan might go. For this example, the merchant chose to borrow $50K at a 20% repayment rate:

Borrowing amount:$50,000
One-time fixed fee:$10,099
Total repayment amount:$60,099
Average daily payment:$111
Approximate time to repay:541 days
Factor rate:1.2 (20% of the borrowing amount)
Effective APR:25.6%

Confused about the last two stats? Keep reading for an explanation of what they mean and how you can use them to understand your PayPal Working Capital loan offer.

Fixed Fees VS Interest Rates

Working Capital loans carry a fixed fee instead of an interest rate. This fee will not change regardless of the time it takes you to repay the loan. Even though the loan does not have a set repayment date, you still know exactly how much money you’re repaying, even if you don’t know exactly when it will be repaid.

The fixed fee is determined by a multiplier called a factor rate. Finding the factor rate is easy:

factor rate = total repayment amount / borrowing amount

In the example above, the factor rate is about 1.2: $60,099 (total repayment amount) divided by $50,000 (borrowing amount) is about 1.2. In other words, the fee is about 20% of the borrowing amount.

Factor rates are used in lieu of interest rates for merchant cash advances and short-term loans. You can use the factor rate to understand how PayPal Working Capital stacks up against similar funders.

A Note On Effective APR

Factor rates are one thing to keep in mind when considering a PayPal Working Capital loan offer; another useful number to consider is the effective APR.

The APR (annual percentage rate), is used to express the rate of borrowing over one year, including the interest rate and any other fees associated with a loan. Because PayPal Working Capital does not have an interest rate or a set repayment date, it’s not technically possible to calculate an APR. However, you can estimate the number.

The best way to estimate your APR is to use a calculator such as Merchant Maverick’s Merchant Cash Advance Calculator (note that, although PayPal Working Capital is technically a loan, the MCA calculator is a better fit because PayPal loans don’t have fixed repayments or a set repayment date).

To get a full understanding of how effective APRs can be used to compare loans like the ones you would receive from PayPal Working Capital, you might want to take a look at our article on the subject.

That said, a typical PayPal Working Capital loan does not exceed an APR of 26% and might be lower depending on your borrowing amount and repayment percentage. Check out the chart below to see how PayPal’s factor rates and effective APR stack up against similar lenders.

PayPal Working Capital Loan Rates Compared

PayPal Working Capital seems like a good deal, but can you get a better one? Check out the chart below to see how PPWC stacks up against other popular business lenders.

PayPal Working CapitalOnDeck Term LoanKabbageSquare Capital
PayPal reviewSquare review
Read ReviewRead ReviewRead ReviewRead Review
Maximum Borrowing Amount$97K (first loan)
$125K (subsequent loans)
Term LengthNo maturity date
Max 18 months
3 – 36 months6 or 12 months per drawNo maturity date
Max 18 months
Factor Rate or Interest Ratex1.01 – x1.58x1.003 – 1.04 per month1% – 12% per monthx1.10 – x1.16
Additional FeesNone0% – 4% origination feeNoneNone
Estimated APRMax. 26%6% – 99%18% – 102%Approx. 40%

Although PayPal Working Capital generally has the lowest estimated APR, its fees can get expensive (if you are borrowing a high percentage of your annual income at a low repayment percentage). On the other hand, PayPal Working Capital also offers the lowest fees on the list. If you’re interested in saving as much money as possible, you may want to make some comparisons before deciding on a lender.

Head over to the full reviews above, but here’s a summary of each of PayPal’s competitors:

  • OnDeck offers short-term loans and lines of credit. Although the application process takes a while longer than that of PayPal Working Capital, this lender is an excellent resource for PayPal sellers due to its high borrowing amounts, long term lengths, and relatively inexpensive fees.
  • Kabbage offers a line of credit. This lender can hook up to your PayPal account to evaluate your creditworthiness. Because it’s a line of credit, you don’t have to reapply every time you need to borrow additional capital.
  • Square Capital offers a loan very similar to PayPal Working Capital. You have to process payments via Square to qualify for this loan.

Final Thoughts

PayPal Working Capital offers easy to understand, customizable loans that are certainly an excellent resource for PayPal users.

The cost of a working capital loan is higher when you are borrowing more money and when you choose a lower repayment percentage. However, because this loan is so customizable, most merchants will be able to find an offer that suits their business in terms of borrowing amount, price, and repayment speed.

Check out our full PayPal Working Capital review for more information on this lender. Or, if you’d like to look at some other options, take a look at our small business loan comparison page.

Bianca Crouse

Bianca Crouse

Bianca is a writer from the Pacific Northwest. As a product of the digital age, she likes absorbing large amounts of information and figures she might as well pass it on. When not staring at a screen, she is probably foraging for food outside, playing board games, or harassing somebody with theories about that movie she just watched.
Bianca Crouse
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