PayPal Working Capital Review
- Short-term loans
- Working capital loans
- Fast application process
- Low fees
- Flexible fee structure
- Easy repayments
The PayPal conglomerate of services is huge. If you sell online, chances are you use PayPal, at least as a backup payment method. If you are a brick-and-mortar store, you might use their mobile processing service, PayPal Here. Here’s another service to add to their already ridiculously large amount of options: PayPal Working Capital.
PayPal launched a Working Capital pilot program in 2013 before opening up to all PayPal users in 2014. The lending service is intended to make it easier for small business owners to get hold of capital to grow their businesses.
In practice, PayPal’s financing product resembles a merchant cash advance, though technically it’s a loan (not a sale of future receivables). When you get a loan from PayPal, you are charged a one-time flat fee; to pay off the loan and the fee, repayments are made through a daily deduction of a percentage of your PayPal sales.
There is a lot to like about PayPal Working Capital: the application process is generally fast and easy, the loans offer a lot of flexibility. In terms of borrowing fees, you can expect to repay somewhere between $1.005 and $1.35 for every dollar borrowed.
Unfortunately, PayPal services suffer from a few flaws, and Working Capital is no different. Like PayPal at large, the customer service is inconsistent. Furthermore, the Working Capital system tends to be inconsistent about approvals and occasionally runs into technical errors.
That said, even though PayPal Working Capital has a few problems, the convenience of applying and repayment, along with the low cost of borrowing make PayPal Working Capital a service worth including in your comparisons (if you’re eligible for the service).
Still interested? Read on for the details!
PayPal offers short-term business loans.
|Time in business:||3 months|
|PayPal revenue:||$20K annually for Premier accounts, $15K annually for Business accounts|
PayPal does not require a minimum credit score. However, you do need to have a PayPal Premier or Business account that’s at least three months old, and be processing at least $15K/year if you have a Business PayPal account or $20K/year if you have a Premier PayPal account.
Terms and Fees
|Borrowing amount:||$1K – $97K|
|Term length:||Max. 18 months|
|Factor rate:||x1.005 – x1.35|
|Effective APR:||Learn more|
PayPal will loan you a maximum of 18% of your annual PayPal sales, with a cap at $97K. For example, if you make $100K annually, PayPal will loan you a maximum of $9K.
PayPal Working Capital loans are repaid through a daily deduction of a percentage of your PayPal sales, so they don’t have a specific maturity date. However, to keep you on track, PayPal requires that you pay at least 10% of your loan every 90 days. So, if you are falling behind, you may need to make catch-up payments.
The only fee PayPal charges is a one-time fee, calculated once by multiplying a factor rate (sometimes called a “buy rate”) by the principal. Because PayPal does not charge interest, your fee will not change regardless of how long you take to repay the loan.
Based on the calculator on the website, PayPal will offer you somewhere between 1.005 – 1.35 times the amount of capital you’re borrowing. In other words, you’ll pay somewhere between $1.01 and $1.35 for every $1.00 you borrow.
Higher fees are directly inverse to the withholding percentage. The less PayPal is allowed to deduct from your account each day, the higher your fee is going to be. By contrast, the more PayPal is allowed to deduct, the lower your fee.
Here’s an example from the payments calculator on the website, so you can see how the withholding rate corresponds to the fee. Obviously, you should try it out yourself using numbers more pertinent to your business.
In my calculations, the effective APR was 25% or lower. To understand how to use an estimated APR to understand loan costs and make comparisons, check out our article about APRs and short-term financing.
All you have to do to apply for a PayPal Working Capital loan is to fill out an application accessed via your PayPal account. The application involves verifying your identity, place of business, and some financial information. PayPal doesn’t need a whole lot of information, given that they’re your credit card processor and may, in fact, know more about your financial situation than you do.
When you’ve completed the application, you’ll know if you’ve been approved or denied.
If you’re approved, you’ll have the opportunity to choose a fee and withholding rate. The working capital will be deposited into your account instantly.
Denials are caused by a number of reasons, some due to problems with your business, and some due to problems with PayPal’s algorithms. Merchants report that the system is often unclear about why a certain business was denied, but here are some common reasons:
- Seasonal sales fluctuation
- Too many chargebacks
- Holds on your account
- Poor eBay seller rating
On PayPal’s end, you might be denied because it was unable to verify some of your information or some other technical error. If you can see no reason for denial, your best course of action is to wait until the next day and try again. If you’re re-applying for an additional loan, wait at least three days for PayPal to process that your previous loan has been paid off.
Sales and Advertising Transparency
PayPal has a remarkably detailed section of their website dedicated to this service. You should have a very clear idea of how the loan works before applying.
The only thing I wish they’d provide more information about is rejection criteria. Merchants who have been denied often have no idea why. PayPal does provide an explanation, but oftentimes it’s too vague to be of any real use.
Customer Service and Technical Support
You can reach PayPal via phone (4am – 10pm Monday – Friday; 6am – 8pm Saturday – Sunday PST) or email. The company also has an active presence on social media sites, including a Twitter account dedicated to customer assistance.
Unfortunately, as many large companies do, PayPal suffers from inconsistent customer service. Working Capital customers are especially susceptible to unhelpful customer service because the loan approval process is completely automated. If you run into problems, customer service may not have a whole lot of helping power. Even so, if you’re having problems getting approved, it’s still worth it to call up customer service; they might have more insight regarding what you’re doing wrong than you do.
Additionally, PayPal has a very large and very helpful community forum. Any problems you run into have likely been encountered by somebody else, so it’s worth checking out if you’re experiencing difficulties.
Negative Reviews and Complaints
PayPal has a page on the Better Business Bureau, though it’s nigh-impossible to find any complaints regarding the Working Capital service. That said, as we’ve talked about on our review of PayPal Here, PayPal is extremely professional and courteous when responding to and resolving complaints.
- Small borrowing maximum: The maximum PayPal will offer is 18% of your annual PayPal sales, up to $97K. Since many businesses only use PayPal as a secondary source of payments, that number might be a very small amount of their total income.
- Technical errors: Merchants have reported technical errors or denials for no reason, even if PayPal has previously loaned money to their business. While still a minor problem, these complaints have slowed down since I last checked in on this service.
- No early repayment incentive: Because PayPal charges a one-time fixed fee, you cannot save money by repaying early. The only reason to repay early is to get another loan.
Positive Reviews and Testimonials
PayPal gives you a lot of reasons to like their service.
The company has a few testimonials on their website, and you can find people saying a lot of nice things on PayPal’s community forum, among other places. The general consensus is that customers like this service because of the:
- Fast application process: The application process only takes minutes.
- Easy access to cash: PayPal is the master at fast cash transfers. ACH takes a few days, but Paypal is almost instantaneous.
- One-time fee: No accruing interest? Sounds like a good deal.
- Inexpensive fee/low effective APRs: For a short-term loan, PayPal has some good fees.
- Flexible fee structure: The fee structure gives the borrower some control over the deal.
- Hands-off repayment method: Just make sure the money’s in the account. PayPal does the rest.
When PayPal Working Capital works, it works really well. The application is fast, the flexible fee structure is great, and repayment is easy. The fees, while potentially not the greatest your business could access, are significantly better than most other short-term loans. This service is good for any business that would benefit from a small infusion of capital.
Merchants that like the looks of PayPal Working Capital might also want to investigate the possibility of obtaining a line of credit. Like this service, lines of credit are intended for a small infusion of cash. Unlike this service, you don’t have to pay off your previous loan and reapply every time you want more money.