PayPal offers a convenient way for businesses to accept payments from customers all over the world. Small business owners who use PayPal will often be offered financing directly from PayPal. Here’s how that works.
What is PayPal Working Capital?
If you have had a PayPal Premier or Business account for at least 90 days you may be invited to apply for PayPal Working Capital, a short-term business loan offered directly by PayPal.
Features, Rates, and Terms of PayPal Working Capital
The amount you receive will be based on your PayPal account history. You will repay your PayPal Working Capital loan by designating a percentage of future PayPal sales to go toward repayment.
The cost of a PayPal Working Capital loan is expressed as a fixed fee, not an interest rate. This makes the overall cost clear, but can make it hard to compare the cost to other types of financing such as bank loans or business credit cards that use an Annual Percentage Rate to describe costs.
PayPal doesn’t disclose the exact repayment terms until you apply. It does state the repayment fee will be based on your business’s PayPal sales history, your loan amount, and the repayment percentage you choose. The higher the percentage payment you choose, the lower the fee.
When choosing your repayment percentage, keep in mind that payments will be taken out of future PayPal sales, and higher repayment percentages may impact your cash flow. Don’t forget that PayPal’s fees will also reduce the net amount you receive.
If you are approved, you can be funded immediately and then as you make future sales through PayPal, the loan fee will be taken out of future sales at the agreed upon payment percentage until the balance is repaid.
There is no penalty for early repayment, and you are free to make extra payments if you choose.
Pros and Cons of PayPal Working Capital
- Fast approval
- Immediate funding
- No personal guarantee
- No credit check
- Payments reduced when sales are lower
- Clear repayment amount
- Can be hard to calculate interest rate
- Cost may be higher than other types of financing
- Unpredictable payments may impact cash flow
- Minimum payment required every 90 days
How to Qualify for PayPal Working Capital
Eligibility is pretty straightforward. In order to qualify for a Paypal Working Capital loan you will need to have a PayPal Business or PayPal Premier account opened for at least 90 days. You must process at least $15,000 in annual PayPal sales if you have a PayPal Business account. For those with the Premier Paypal account, that minimum is increased to $20,000.
The application process is straightforward as long as you meet the qualifications. You apply online within your PayPal account. PayPal says you can be approved in as little as five minutes if you meet the qualifications.
Some business owners may be asked to provide additional information such as contact information for other business principals.
Applying for a PayPal Working Capital loan does not require a good personal credit score, as there is no personal credit check or business credit check.
You cannot have an existing PayPal Working Capital loan. If you do, you’ll have to repay it before applying for another one.
How PayPal Working Capital Compares to Other Lenders
Like many types of online financing, PayPal Working Capital offers a much simpler application process than traditional bank loans. Because PayPal has information about your PayPal sales, the application process is fast and easy.
However, that speed can come with a cost. This type of financing may be more expensive than other loans or lines of credit. It’s most similar to a business cash advance or merchant cash advance.
The biggest drawback is that it is a hard to understand how much you’ll pay in terms of an interest rate, making it difficult to compare the cost to other types of financing your business may be eligible for. You may discover you’ll pay more than you could if you shopped around for financing. For options on Business Credit Cards go here.
Alternatives to PayPal Working Capital
Other types of business financing that may offer comparable funding speed include:
- Business credit cards
- Invoice factoring
- Business cash advances
- Online lines of credit
Businesses that qualify may want to consider loan options that may offer monthly payments and lower interest rates including microloans, term loans or even SBA loans.
Nav makes it easy to find small business loans and other financing options based on your qualifications.
Is PayPal Working Capital Considered Income?
PayPal Working Capital is a type of loan and loans are not considered income unless they are not repaid. In the event your business defaults on a business loan, it may be considered income at some point and trigger a tax liability.
Is PayPal Working Capital the Same as a PayPal Business Loan?
No. The PayPal Business Loan is a product offered through Webbank. You will fill out a questionnaire to assess your eligibility, and answer questions about your business as well as personal details such as your Social Security Number. If you then decide to apply, there will be a personal credit check that can impact your credit score.
What Happens if You Default on PayPal Working Capital Loan?
If you don’t pay your PayPal loan you can go into default. If that happens, PayPal may require the entire loan to be due immediately. Your account may be subject to collections and/or legal action.
This article was originally written on May 5, 2022 and updated on September 8, 2022.