PayPal Working Capital Review
- Borrower qualifications are lower than going through a bank
- No credit score requirements
- No extra fees
- The application process is fast and easy
- Website advertising is clear and informative
- Only available to PayPal sellers
- Rates can be expensive
- Customer service is poor
PayPal Working Capital is a business loan service offered by PayPal, one of the biggest names in the eCommerce space. Originally launched as a pilot program in 2013, PayPal Working Capital opened up to all PayPal users in 2014. This lending service is intended to help merchants get 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 fixed fee. Repayments of the loan and fee 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, and the loans offer a lot of flexibility. In terms of borrowing fees, PayPal doesn’t specifically state a range, but you can expect to repay anywhere between $0.01 and $0.58 in fees for every dollar borrowed (according to PayPal’s sample calculator).
Overall, customers appear happy with PayPal Working Capital. However, some customers express frustration because loan approval tends to be inconsistent, which means that PayPal Working Capital might not always be a dependable source of capital when you need it. If you are having trouble getting approval for a PayPal Working Capital loan, we have included some tips below, which may help you get approved, or you could check out some of our favorite alternatives to this service.
Although PayPal Working Capital is occasionally undependable, it’s certainly a service worth considering if you are a PayPal seller.
Final Verdict: If you have a Business or Premier PayPal account, PayPal Working Capital is a fast and easy way to secure funding for your small business. However, readers should know that PayPal Working Capital fees can be expensive, and borrowers can’t save money by repaying the loan early.
Is PayPal Working Capital right for your business? Keep reading to find out!
Table of Contents
PayPal offers short-term business loans.
|Time In Business:||3 months|
|PayPal Revenue:||$20,000 annually for Premier accounts, $15,000 annually for Business accounts|
PayPal does not require a minimum credit score, nor does it check your credit history. 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. Additionally, you must pay off any existing PayPal Working Capital loan to apply for a new one.
Terms & Fees
|Borrowing Amount:||$1,000-$125,000 (first two loans)|
$1,000-$200,000 (subsequent loans)
|Term Length:||Max. 18 months|
|Factor Rate:||Approx. x1.01-x1.58|
|Effective APR:||Learn more|
PayPal will loan you a maximum of 35% of your annual PayPal sales, capped at $125K for your first two loans, and $200K for loans after that. For example, if you make $100K annually, PayPal will loan you a maximum of $35K.
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 5% or 10% of your loan every 90 days. The 5% minimum is required for loans that will take 12 months or longer to pay off, while the 10% minimum applies to loans that will be repaid within 12 months. If you are falling behind, you may need to make catch-up payments.
The only fee PayPal charges is a one-time fixed fee, calculated once by multiplying a factor rate (sometimes called a “buy rate”) by the principal. This fee must be repaid along with the principal. Because PayPal does not charge interest (which compounds), your fee will not change regardless of how long you take to repay the loan.
Based on the calculator on its website, PayPal will offer you somewhere between 1.01-1.58 times the amount of capital you’re borrowing. In other words, you could pay anywhere between $0.01 and $0.58 in fees for every $1 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. Make sure you try it out for yourself using numbers more pertinent to your business before applying.
The fees for PayPal Working Capital vary a lot, so I’d advise anybody interested in getting a loan to carefully consider the offer before deciding if the loan is worth it. To learn how to calculate your estimated APR, or for more information about what factors you should consider before borrowing, check out our article about APRs and short-term financing.
All you have to do to apply for a PayPal Working Capital loan is fill out an application, which you can access via your PayPal account. The application involves verifying your identity, place of business, and some financial information. Typically, PayPal auto-fills this information, and all you have to do is make sure that it’s correct.
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, and after agreeing to the terms, the working capital will be deposited into your account instantly.
If you’ve been denied, it may be due to problems with your business or because of PayPal’s sometimes finicky application and verification system. Unfortunately, the cause can be difficult to figure out. However, here are common reasons loan why requests get denied and what you might be able to do to get approved:
Loan Denial Troubleshooting
The reason for a denial isn’t always easy to determine. Merchants report on the community forum that the application simply turns up an error code with no further explanation. The most common problems appear to be an identification error (the system could not verify your information), error code 646 (you have abnormal sales), error code 641 (sales holds or a pending balance on your account), or you’re applying too soon after paying off another loan.
Based on reports from other merchants, here is what you can do to get your application accepted:
- Wait Three Days: If you have just paid off a loan, PayPal advises merchants to wait at least three days before applying for another so that the system has time to process the status of your old loan.
- Check Your Business Information & Address: If you’re getting an identification error, it may be because your information was entered incorrectly (or in a way the system doesn’t like). Make sure your information is accurate. If that doesn’t work, try changing the abbreviations or formatting choices, such as changing “Boulevard” to “Blvd.”
- Clear Your PayPal Credit Balance: One merchant reported that they had success getting a loan after clearing the balance on their PayPal Credit.
- Keep Applying: If it’s been at least three days since you paid off the balance, your account is in good standing, and you aren’t getting an identification error, your best bet may simply be to keep applying every day. PayPal does not penalize you for doing so, and many merchants have reported that they were suddenly eligible one day for no apparent reason, even after being denied the day before.
Although PayPal often doesn’t provide a reason for denial upfront, it does send out a more thorough reason for denial via snail mail. As such, you may be able to get a more clear explanation for the rejection within a couple of weeks.
If you keep getting denied and don’t have time to keep applying, you might want to seek out an alternative lender. Fortunately, most lenders on the list will be able to give you an initial approval or denial in a few minutes. LoanBuilder, a new PayPal service, offers decent rates and quick funding, so it’s a good place to start.
Sales & Advertising Transparency
PayPal has a remarkably detailed section of its website dedicated to this service. You should have a very clear idea of how the loan works before applying.
The only thing I wish PayPal did provide more information about is its rejection criteria. Merchants who have been denied often have no idea why. PayPal usually does give an explanation, but oftentimes it’s too vague to be of any real use.
Customer Service & Technical Support
You can reach PayPal via phone (4 AM-10 PM Monday-Friday and 6 AM-8 PM Saturday-Sunday PST) or email. The company also has an active presence on social media sites, including a Twitter account dedicated to customer assistance. I should note that PayPal currently has the following message on its customer service homepage: “Due to coronavirus (COVID-19) safety precautions, we currently have limited customer service staffing so wait times may be longer.”
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 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 & Complaints
PayPal has a page on the Better Business Bureau, though it’s nigh impossible to find any complaints specifically regarding the Working Capital service. That said, as we’ve talked about in our review of PayPal Here, PayPal is extremely professional and courteous when responding to and resolving complaints.
Here are the most common complaints I gleaned from PayPal’s community forum and a few other places on the internet:
- Small Borrowing Maximum: The maximum that PayPal offers is 35% of your annual PayPal sales, with a cap of $125K for your first loan and $200K for subsequent loans. Because many businesses only use PayPal as a secondary source of payments, that number might be a very small amount of their total income.
- Denials: Merchants have reported technical errors or denials, even if PayPal has previously loaned money to their business. If you’re having trouble, check out the Loan Denial Troubleshooting section above to learn about reasons you might be getting denied and what you can do about it.
- 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 & Testimonials
PayPal gives you a lot of reasons to like the service it provides.
The company has a few testimonials on its website, and you can find people saying a lot of nice things on PayPal’s community forum, among other places. The consensus is that customers like this service because of the:
- Fast Application Process: The application process only takes a few minutes.
- Easy Access To Cash: PayPal is the master at fast cash transfers. The money can be in your account within minutes of accepting a loan offer.
- One-Time Fee: No accruing interest? Sounds like a good deal.
- Inexpensive Fee/Low Effective APRs: PayPal’s fees are often lower than those of its competitors.
- 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.
We’d love to have you contribute to the conversation, though. Have you applied for a PayPal Working Capital loan? What was your experience like? Drop us a comment and let us know all about it!
PayPal Working Capital is a fantastic resource for merchants who use PayPal. The application is fast, the fee structure is flexible and customizable, and repayment is easy.
PayPal generally has very reasonable fees, but they have the potential to run a little high. As such, you should learn what to look for to make an informed borrowing decision. Fortunately, although PayPal Working Capital loans are a bit unusual, they are straightforward, and the website provides so much information about them that you shouldn’t run into any surprises.
Once again, merchants who are getting denials might want to investigate their other options. However, if you are eligible, PayPal Working Capital is certainly worth including in your comparisons.