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 structures of each option. This will help you decide if either of these products makes sense for your needs and goals.
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 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 to business funding, PayPal offers point of sale and checking account services. In other words, you can use PayPal to process payments, make payments, and store money (like a bank account). You can even get a PayPal debit card to make purchases from your PayPal account.
Businesses use PayPal mainly because it’s affordable, simple, and you don’t have to maintain a minimum balance. PayPal also charges a flat fee of 30 cents per transaction plus 3% of the transaction’s total amount. This makes PayPal very advantageous for smaller businesses. PayPal’s top competitors include Stripe and Square, both of which use business models invented by PayPal.
Contact details, birth dates, and Social Security numbers of primary business owners and managers.
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 records from the past three months.
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 Premier or PayPal Business account for at least three months. If you have PayPal Premier, you must process at least $20,000 in annual sales. 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.
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 550. 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.
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 not needed, but you will need to sign a personal guarantee. This means that in the event of a default, PayPal can seize your personal assets to make up for the lost funds.
Payments for PayPal Business Loans are reported to the business credit bureaus but not the personal credit bureaus. Thus, your payment history will boost your business credit score but not your personal credit score. Your business credit could be just as (if not more) important as your personal credit when applying for loans with some business financing companies.
If you meet the main requirements, the underwriting process is straightforward. PayPal Working Capital was designed so PayPal users wouldn’t have to go through the trouble of applying for funding somewhere else when PayPal already has their financial records. PayPal users who meet the revenue requirements do not even have to create new accounts.
Instead, you’ll start by verifying your identity, along with your business’s location and basic financial information. The key word here is “verify” instead of “fill out.” As we mentioned earlier, PayPal already has most of this information in its system. Thus, the information will automatically appear in the application. You just have to verify it. Once you verify the information, you’ll instantly learn whether you’ve been approved or denied.
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 provide an estimation of how much time it will take to repay the full amount. You will then review the terms of the loan along with your fixed fee.
At this point, you can either accept the offer or go back and enter another borrowing amount and/or 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. You can use the funds as soon as they appear in your account.
Eligibility is determined via an online questionnaire that reportedly takes 5-10 minutes to fill out. You can also check your eligibility over the phone.
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, a contract will be emailed to you that gives PayPal permission to extract weekly payments from your business bank account. Funds will then appear in your PayPal Business account within 24-48 hours.
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.
Earlier, we noted that 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 they would with 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.
PayPal will deduct payments from your business bank account every week. Though you can change the day of the week in which payments are deducted, you cannot change the frequency.
It’s unclear if PayPal business loans have conditions similar to the catch-up payments or the 90-day rule with PayPal Working Capital.
If you use PayPal to process payments, PayPal Working Capital is usually straightforward to qualify for. Theoretically, borrowers don’t even have to be in business for over three months. Typical business loan requirements, like credit score and profitability, literally have zero impact on your application.
The maximum term limit for PayPal Working Capital is just 18 months. Thus, PayPal Working Capital is considered short-term financing. Compared to the interest rates of traditional short-term business loans, PayPal Working Capital’s fixed fee is pretty 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 a matter of minutes. And unlike a business term loan, you don’t have to remember to make manual payments. PayPal deducts the payments each day, with no manual effort on your part whatsoever.
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 550. The minimum annual revenue requirement is also fairly 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 need to 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.
The number one disadvantage of PayPal Working Capital 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 $125,000, regardless of your annual revenue. Businesses that earn hundreds of thousands of dollars per year would likely access higher borrowing amounts from other companies.
Though there is no prepayment fee, PayPal calculates a fixed fee that’s factored into the borrowing amount when you apply. Hence, you won’t save on fees if you pay off the loan early.
Also, PayPal Working Capital does not report payments to personal or business credit bureaus. For this reason, timely payments will do nothing for your credit score.
If you can qualify for PayPal Working Capital, the biggest disadvantage is the repayment structure. You have to 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 each day. 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. In other words, you essentially risk default 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.
While PayPal Business Loans can carry similar terms as a traditional business term loan, the repayment structure is different. Traditional business term loans carry 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.
If PayPal unexpectedly rejects your application for a working capital loan, it may be because of volatile cash flow. Certain industries are particularly prone to occasional dips in revenue. To qualify for PayPal Working Capital, you must show at least three months of substantial and consistent sales.
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 don’t even have the opportunity to explain the issue.
Thankfully, plenty of other business financing companies offer similarly loose requirements as PayPal Working Capital. You don’t need a high credit score to get approved for certain bad credit business loans. Some of these companies even specialize in tumultuous cash flow and won’t reject your application if business slows down for a temporary period. These companies tend to 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 unexpectedly rejects your business loan application, it may be because you cannot satisfy the weekly repayment structure. In this case, you may want to look into 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 in regards to credit scores. And just like PayPal, the money will appear in your bank account in 24-48 hours.
PayPal Working Capital does not report payments to personal or business credit bureaus. PayPal Business Loans, on the other hand, reports your payments to business credit bureaus. To clarify, 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 550. Hence, they will pull your credit during the application, which may affect your personal credit score.
PayPal Working Capital has the same general repayment structure as a merchant cash advance. However, several circumstances could cause your daily payment to rise, even though your sales have not. For instance, 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.
With PayPal Business Loans, PayPal automatically deducts your payments each week.
You cannot change the percentage of daily or weekly sales that PayPal takes to repay both programs.
This question pertains exclusively to PayPal Working Capital. Technically, PayPal’s daily deductions are from the previous day’s sales. Let’s say you make sales on Monday but no sales on Tuesday. In this case, PayPal would still have to collect payment for Monday’s sales. So, it would take catch-up payments until you have paid back at least 5% of the total amount within the last 90 days.
In summary, PayPal only takes no money when you make no sales the previous day.
PayPal Working Capital makes 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. Hence, this 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.