Online payment processor PayPal offers two business financing products: PayPal Working Capital and PayPal Business Loans. Both carry their pros and cons and are surprisingly different from one another.
In this guide, we’ll explain the main requirements and repayment structure. This will help you decide if either of these products makes sense for your needs and goals.
Borrowers can receive up to 35% of their annual PayPal sales, with a borrowing limit of $150,000 and terms of up to 18 months. The debt is paid off via a percentage of daily sales towards the borrower’s PayPal account.
PayPal Working Capital provides additional working capital to businesses that use PayPal. The program is very similar to a merchant cash advance. Borrowers can receive up to 35% of their annual sales conducted via PayPal, with a borrowing limit of $125,000 and terms of up to 18 months. The debt is paid off via a percentage of daily sales towards the borrower’s PayPal account.
PayPal also offers business term loans, also known as LoanBuilder, with automatic weekly repayments instead of monthly payments. You can borrow up to $500,000 with terms of up to 52 weeks.
Unlike PayPal Working Capital, PayPal Business Loans are not exclusively available to businesses that use PayPal to process payments. In addition, applicants no longer need a PayPal Business Account to apply.
Otherwise, all you need to apply for PayPal Working Capital is an account with PayPal Premier or PayPal Business. If you have an account with one of these services, PayPal already has all the financial information required for applying. This includes your PayPal account history from the past three months.
You must have a PayPal Premier or PayPal Business account for at least three months. You must process at least $20,000 in annual sales if you have PayPal Premier.
For PayPal Business, you must process at least $15,000 in annual sales. Borrowers also cannot be currently repaying another existing PayPal Working Capital loan.
There is no credit check. Making payments will not affect your personal or business credit score.
If you use PayPal to process payments, you do not need to submit any financial records because they will already be in the system. On the other hand, if you do not process payments with PayPal, you must provide four months of business bank statements.
Depending on your business’s financial health, you may need to provide further financial information. Additionally, you will need to enter similar information as PayPal Working Capital.
To qualify, you must have a PayPal Business account. You do not, however, need to use PayPal to process payments.
Borrowers must also be in business for nine months and earn at least $42,000 in annual revenue. Unlike PayPal Working Capital, there is a minimum FICO score of 620. Lastly, borrowers cannot have any personal bankruptcies.
Your borrowing amount, terms, and weekly payment size depend on your business’s overall financial health and your personal credit score. PayPal Business Loans are also known as LoanBuilder.
Instead of a traditional interest rate, the business loan has a fixed fee that is factored into weekly repayments. These payments will be automatically deducted from your business bank account or PayPal account, depending on which one you use to collect sales. You can choose the day of the week on which payments are deducted.
You can pay off the loan in full at any time, but you’ll have to pay the full fee based on the original term of the loan.
Collateral is unnecessary, but you must sign a personal guarantee. This means that in the event of a default, PayPal can seize your personal assets to compensate for the lost funds.
Payments for PayPal Business Loans are reported to the business credit bureaus but not the personal credit bureaus. Your business credit could be just as (if not more) important as your personal credit when applying for loans with some business financing companies.
PayPal Working Capital was designed so PayPal users wouldn’t have to go through the trouble of applying for funding somewhere. PayPal users who meet the revenue requirements do not have to create new accounts. Instead, you’ll start by verifying your identity, your business’s location, and basic financial information.
Next, you’ll be asked to select your borrowing amount and repayment percentage (10%, 15%, 20%, 25%, or 30%). The size of your repayment percentage determines the size of your fixed fee.
After inputting your selections, PayPal will estimate how much time it will take to repay the full amount. You will then review the loan terms and your fixed fee.
At this point, you can either accept the offer or go back and enter another borrowing amount and repayment percentage.
Once you accept the offer, PayPal’s partner lender WebBank will deposit the funds in your PayPal account in just a few minutes.
Repayments begin 72 hours after funding is distributed. You can also make manual payments or pay the loan in full at any time, as there is no prepayment fee.
Each day’s payments are deducted the following day. If you don’t have enough money in your PayPal account to cover the amount owed on yesterday’s sales, PayPal will take “catch-up payments” from your account until you are caught up. For this reason, your repayment amounts won’t necessarily rise and fall in tandem with your sales like a merchant cash advance.
PayPal won’t take catch-up repayments that put your balance in the negative. However, if your daily sales drop so low that you’re behind more than 50% of your total amount owed, PayPal may consider your account in default. At this point, PayPal may put restrictions on your account or even demand that you repay the entire loan.
You can find out if you’re eligible by completing the initial 5-10 minute questionnaire online.
If you pass the eligibility stage, you will be asked to choose your borrowing amount and terms. Like PayPal Working Capital, entering these numbers will reveal the total cost of the loan.
PayPal will then check your credit, which may impact your credit score. It’s important to note that filling out the questionnaire will not impact your credit but choosing your amount and terms will.
After accepting the offer, PayPal emails you a contract that permits it to extract weekly payments from your business bank account. Funds will then appear in your account within 24-48 hours.
PayPal will deduct payments from your business bank account weekly via ACH transfer. Though you can change the day of the week on which payments are deducted, you cannot change the frequency.
If you use PayPal to process payments, PayPal Working Capital is usually straightforward to qualify for. Theoretically, borrowers don’t have to be in business for over three months. Typical business loan requirements, like credit score and profitability, have zero impact on your application.
The maximum term limit for PayPal Working Capital is 18 months, classifying it as short-term financing. Compared to the interest rates of traditional short-term business loans, PayPal Working Capital’s fixed fee is low.
Traditional short-term business loans might also have longer applications and take more time to distribute funding. With PayPal Working Capital, you can complete the application and receive funding in minutes.
The main is that it’s only available to PayPal users. If you do not use PayPal to process payments, you cannot qualify for PayPal Working Capital.
Secondly, your first two loans cannot exceed $150,000, regardless of your annual revenue. Businesses that earn hundreds of thousands of dollars per year would likely access higher borrowing amounts from other companies.
You won’t save on fees if you pay off the loan early. PayPal Working Capital does not report payments to personal or business credit bureaus. Timely payments do nothing for your credit score.
For those that qualify, the most significant disadvantage is the repayment structure. You must keep enough money in your PayPal account to cover the amount owed on yesterday’s sales. This may be an issue for businesses that usually move money out of their PayPal accounts quickly daily. If you use PayPal’s auto sweep function to send money out automatically, you’ll have to turn that off.
PayPal Working Capital would be much less risky were it not for the 90-day rule. Even if you’ve met your daily payment obligations thus far, you still might not be on track to pay back at least 5% of the total amount in 90 days. You essentially risk defaulting every 90 days if you don’t track how much you may need to repay on top of what’s covered by your daily sales.
PayPal Working Capital can easily disrupt your cash flow between the repayment structure and PayPal’s catch-up policy.
The main requirements for PayPal Business Loans are easier to meet than traditional business term loans. For example, many business term loans require a credit score of at least 700. With PayPal Business Loans, your credit score can be as low as 620. The minimum annual revenue requirement is also reasonably low compared to traditional business term loans.
And since payments are automatically deducted each week, you don’t have to worry about remembering to make payments on your own.
Lastly, though you must sign a personal guarantee, PayPal Business Loans do not require collateral. This makes PayPal business loans increasingly accessible to smaller businesses or individuals who don’t own expensive assets.
While PayPal Business Loans can carry similar terms to a traditional business term loan, the repayment structure differs. Traditional business term loans have monthly payments, whereas PayPal Business Loans automatically deduct payments each week. It’s safe to say that weekly payments could pose more danger to your cash flow than monthly payments.
Like PayPal Working Capital, there is no benefit to paying off the loan early. You would still have to pay the same amount as if you paid on schedule.
Also, timely payments on business term loans usually raise your personal credit score. PayPal Business Loans only report payments to business credit bureaus, so your payments do nothing for your personal credit.
And though many business term loans carry personal guarantees, it’s not impossible to find a company that lacks this requirement.
PayPal Working Capital does not report payments to personal or business credit bureaus. On the other hand, PayPal Business Loans reports your payments to business credit bureaus. Timely payments will raise your business credit score but not your personal credit score.
There is no credit requirement for PayPal Working Capital, so there is no credit pull during the application process. But PayPal Business Loans has a minimum credit score of 620. It will pull your credit during the application, which may affect your personal credit score.
PayPal Working Capital shares many similarities with merchant cash advances, but it is technically a loan. The main difference is if you don’t have enough money to cover the previous day’s sales, PayPal will take “catch-up payments” from your account until you reach this point.
You cannot change the percentage of daily or weekly sales that PayPal takes to repay both programs.
PayPal takes the money based on the previous day’s sales. If there were no sales on the previous day, it wouldn’t process payments, but you’re still subject to “catch-up payments” once you have sales.
If PayPal rejects your application for a working capital loan, it may be because of volatile cash flow. Specific industries are particularly prone to occasional dips in revenue.
PayPal Working Capital also relies on a computer algorithm to issue approvals. If the algorithm detects the slightest inconsistency with sales, it may reject your application. Since there’s no human involvement in this process, you can’t even explain the issue.
These companies use human beings, not computer algorithms, to approve loans. Before rejecting your application, you would have a chance to explain the drop in revenue and prove that it doesn’t impact your capacity to repay debt.
If PayPal rejects your business loan application, it may be because you cannot satisfy the weekly repayment structure. In this case, you may consider other companies that carry similar products as PayPal Business Loans but allow multiple payment frequencies.
For example, many companies offer business term loans or working capital loans that you can pay back monthly or bi-weekly. These companies also usually have similarly loose requirements, especially regarding credit scores. And just like PayPal, the money will appear in your bank account in 24-48 hours.
PayPal Working Capital loans make sense for businesses that use PayPal to process payments and probably won’t qualify for other options. It’s also a form of short-term financing, so you shouldn’t be looking for a large borrowing amount.
PayPal Business Loans make sense for businesses looking for moderate amounts but cannot qualify for traditional business term loans. It is a good option if you have a low credit score, lower annual revenue, less than a year in business, and you’re looking for options beyond short-term financing. For these reasons, we give PayPal Working Capital a 4.5 out of 5 rating but only suggest using them if you can’t secure better terms.
Disclaimer: The PayPal trademark is owned by PayPal, Inc. and its use herein is for reference purposes only and it does not indicate sponsorship or endorsement from PayPal, Inc.