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PayPal Working Capital and Business Loans Review 2019

June 28, 2019
Small Business, Small Business Loans
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With small-business financing through PayPal, entrepreneur Lisa Brooks has grown her catering and meal-delivery business, Heart & Soul Personal Chef Service, from a one-woman operation to a budding business with 10 employees.

Brooks uses PayPal’s working capital loan, which offers loan amounts based on PayPal sales. As her sales have increased, Brooks has taken additional loans at higher amounts. The loan is repaid automatically with a percentage of each PayPal sale.

“It doesn’t feel like a loan to me,” Brooks says.

Since 2013, PayPal has provided more than $10 billion in business financing. In addition to the working capital loan, PayPal also offers a more traditional small-business loan.

With the business loan, “you don’t need to process payments on PayPal to qualify,” says Joseph Gallo, senior communications manager at PayPal.

Here’s what you need to know about PayPal loans and how they compare with other small-business loans.

PayPal loans at a glance

PayPal working capital loanPayPal business loan
APRsNot disclosedNot disclosed
Loan amounts$1,000 to $125,000$5,000 to $500,000
RepaymentsAutomatic deductions from a PayPal account as a percentage of each sale, typically over nine to 12 months.Automatic weekly repayments from a bank account over 13 to 52 weeks.
How to qualify
  • Have a PayPal Premier or Business account for 3+ months.
  • Minimum $20,000 PayPal sales in the past year in a Premier account or $15,000 in PayPal sales with a Business account.
  • Have a PayPal Business account; processing payments with PayPal is optional.
  • Minimum credit score: 550.
  • Minimum time in business: 9 months.
  • Minimum annual revenue: $42,000.
  • No personal bankruptcies.
  • Typical funding timeWithin minutes.A few days.

    PayPal working capital loan

    Best for: Businesses that process sales through PayPal and need working capital for things like covering payroll or seasonal dips in revenue.

    PayPal Working Capital provides financing of up to 35% of your annual PayPal sales, with a maximum borrowing amount of $125,000 on your first two loans, and up to $200,000 thereafter.

    PayPal charges a single fixed fee based on your sales volume, account history, the amount of your loan and the percentage of sales you choose to direct toward repayment.

    You choose the repayment percentage of your sales (10%, 15%, 20%, 25% or 30%) when you apply for a loan, with payments automatically deducted from your PayPal account until the loan is repaid in full.

    Approved loans are funded within minutes, with repayments beginning 72 hours after the loan is received. PayPal requires you to repay at least 5% or 10% of your total loan amount every 90 days to keep your loan in good standing.

    Here’s what you’ll need to qualify:

    • A PayPal Premier or Business account for at least three months, as PayPal uses these accounts to determine whether or not you qualify.
    • At least $20,000 in PayPal sales in the past year with a PayPal Premier account, or at least $15,000 in annual PayPal sales if you have a Business account.
    • If you have an existing PayPal working capital loan, you’ll need to pay it off in full before applying for another round of financing.

    Approval and funding take only a few minutes since the company already has your information and account history on file, Gallo says. 

    » MORE: Best working capital loans

    PayPal working capital example

    Let’s say you average $100,000 in annual PayPal sales and you are approved for a $25,000 working capital loan to hire new employees for your business. The higher the repayment percentage you choose, the lower the fee, as the table below shows.

    If you choose to have 30% of your daily sales go toward repayment, your fixed fee is $3,079, bringing your total repayment amount to $28,079, according to PayPal’s sample fee calculator. You’ll have higher ongoing payments, but the total cost of the loan will be lower.

    Repayment percentageFixed feeTotal repayment
    30%$3,079$28,079
    25%$3,823$28,823
    20%$5,049$30,049
    15%$7,456$32,456
    10%$14,524$39,524
    Note: Calculations based on PayPal’s sample fee calculator.

    PayPal business loan

    Best for: Businesses that need fast cash, don’t qualify for a bank loan, or need funding for expansion, such as buying equipment or opening a new location.

    PayPal business loans range from $5,000 to $500,000. The amount you qualify for depends on the financial strength of your business and your credit score.

    The business loan has a fixed fee and weekly repayments; however, PayPal withdraws repayments from your business’s bank account instead of a PayPal account. It’s repaid over 13 to 52 weeks, depending on the loan size.

    To qualify, you’ll need to meet the following requirements:

    • Have a PayPal Business account; processing payments through PayPal is optional.
    • Minimum FICO score of 550.
    • Minimum of nine months in business.
    • Minimum annual revenue of $42,000.
    • No personal bankruptcies.

    The application process takes longer if you don’t process payments with PayPal, since you must submit sales information, according to Gallo.

    However, funding can be faster than a typical bank loan. Expect to receive a loan decision within 24 to 48 hours of submitting the application, with funding as fast as the next business day if the loan is approved by 5 p.m. ET on a weekday.

    PayPal business loans require borrowers to sign a personal guarantee, which gives it the right to go after your personal assets if you fail to repay the loan.

    » MORE: Compare business expansion loans

    PayPal loans: Pros and cons

    Pros

    Fast funding: For its working capital loan, funding can be transferred to your PayPal account in just a few minutes. With a business loan, funding may take a few days after you submit the application.

    Strong credit not required: You can qualify for a PayPal loan with bad credit. Your personal or business credit scores aren’t a factor when applying for the working capital loan, while the business loan requires a minimum FICO score of 550. Banks and other lenders typically require good credit (above 689 FICO) to qualify.

    No collateral required: PayPal doesn’t require collateral, which means you won’t have to pledge assets such as real estate or equipment that PayPal can seize if you fail to repay the loans. However, PayPal’s business loan does require you to sign a personal guarantee.

    Cons

    Limited availability: PayPal working capital is available only to businesses that already use PayPal to process payments, while its business loan is only available to businesses with a PayPal Business account.

    To repay the working capital loan, you have to continue accepting your customers’ payments through PayPal because loan repayments are deducted from your PayPal account.

    No benefit to early repayment: You won’t save on fees if you make additional payments on either loan since PayPal charges a fixed loan fee that’s determined when you apply.

    Low maximum loan amounts: On the working capital loan, you can borrow up to 35% of your annual PayPal sales, with a maximum of $125,000 on your first two loans. That means a borrower with $100,000 in annual PayPal sales may qualify for up to $35,000.

    No boost to credit: PayPal Working Capital doesn’t report your payments to personal or business credit bureaus, so on-time repayments won’t affect your credit. However, they can improve your chances of getting another loan through PayPal and can lead to better terms. PayPal Business Loan only reports payments to the business credit bureaus.

    PayPal loan vs. other small-business loans

    Before you get a PayPal loan, understand how it stacks up against other options in terms of total borrowing costs, repayment schedules and maximum borrowing amounts.

    Traditional bank loans

    PayPal’s loans can be more expensive than traditional bank loans, which typically offer annual percentage rates of less than 10%.

    To qualify for a traditional bank loan, you usually need to have good credit and an established business, and you may need to provide collateral. Consider a bank loan if you meet those requirements and can wait a bit longer for funding.

    Bank loans include Small Business Administration 7(a) loans, which are federally guaranteed term loans up to $5 million that carry low interest rates and long repayment terms. The terms depend on how you plan to use the money: seven years for working capital, 10 years for equipment purchases and up to 25 years for real estate purchases.

    Merchant cash advances

    PayPal’s working capital loan resembles a merchant cash advance, which takes a daily percentage of businesses’ sales as repayment.

    MCAs are controversial because they have extremely high fees. APRs typically range from 40% to 350%, depending on the lender, size of the advance, extra fees and repayment length. PayPal’s loans are likely to carry lower APRs than MCAs.

    Online small-business loans

    Online small-business loans vary widely, with APRs ranging from 8% to 99% and terms from 12 weeks to 10 years. PayPal loans typically are repaid in less than a year, so if you want a longer repayment period, consider an online term loan instead.

    While PayPal’s working capital loan doesn’t help boost business credit, some online small-business loans can build credit.

    Find and compare small-business loans

    Use NerdWallet’s comparison tool to find the best small-business loans to meet your needs and goals. We gauged factors including lender trustworthiness, market scope and user experience, and arranged them by categories that include your revenue and how long you’ve been in business.

    About the authors