For many small businesses, PayPal is essential to making and receiving payments easily. As part of Paypal’s continued efforts to offer invaluable small business resources, it has expanded its services to include Working Capital Loans for Small Businesses.
A Working Capital small business loan from PayPal offers an extremely fast application process, quick funding, and requires no personal credit check or guarantee.
PayPal Working Capital allows you to borrow up to 15% of your last 12 months of PayPal sales, up to $85,000, with a fixed fee – no interest.
Payments on your PayPal Working Capital loan work a little bit differently than a traditional loan. Instead of a monthly payment, payments are made on a daily basis. Each day you have sales coming into your PayPal account, a percentage of those sales (that you choose) is used to repay the loan.
The larger the percentage of your daily sales you choose to allocate towards repayment, the lower your loan fee. Because the fixed loan fee is the “interest” PayPal receive from the loan, the higher the percentage of your daily sales go to the loan, the lower your “interest rate.”
This sounds rather confusing, so PayPal has a handy chart that shows an example of the how the repayment percentages and fees work:
In the example above, a business owner with an $8,000 loan, who chooses to repay his loan with 10% of his daily sales, would pay a fee of $949, essentially an 11.86% interest rate.
However, if that same business owner chooses instead to allocate 30% of his daily sales towards repaying the same $8,000 loan, his fee would be $294 – or an interest rate of 3.68%.
- Daily Payments
- No Payment due on days with no sales
- Funds are deposited to your account within minutes
- No penalties for additional or early payments
- Fixed Fees – no interest
- No Fees for missed and catch-up payments
- Very little information needed to apply
- The lower your repayment percentage, the higher the fee
- Prepayments will not lower the loan fee
- Default could result in the balance becoming due immediately, and the debit of your funding methods
- Must have significant sales through your PayPal account to qualify
- Loan fees vary greatly, and are set on a case-by-case basis. You will not know your loan fees by repayment percentage until you apply.
Which Businesses Will Benefit The Most?
Small businesses who use PayPal for all or a significant portion of their sales are ideal candidates for a PayPal Working Capital loan, because the loan amount you qualify for is based on the sales that come through PayPal. And, because no personal credit check is needed, if your business is thriving, but your own credit is not, a PayPal Working Capital loan could provide your business with the funding it needs to thrive when other options aren’t available to you.
How To Apply & Documents Needed
PayPal Working Capital loans are offered to select customers based on your PayPal sales history. Because all of the information you need to apply is already stored within your PayPal account, applying for a Working Capital loan takes less than 5 minutes.
PayPal does not specify a minimum amount of sales necessary to apply, nor do they list minimum or maximum loan amounts. Finding out if you can apply is quick – simply click the “Apply” button under Working Capital, and you will either be told you do not qualify, or be allowed to begin the application process.
If your business qualifies to apply, PayPal will ask you to confirm your contact details and the sales information that PayPal automatically populates from the last 12 months.
While PayPal does not specifically state what documents are needed to apply, it is wise to have the following on hand:
- Business Tax ID
- Most Recent Business Tax Returns (to verify you filed your taxes)
You will then choose your repayment percentage, review and agree to the terms of the loan. It is important to realize that once the loan has been received, you cannot change the repayment percentage you agree to during the application process.
Once you have been approved for the loan your PayPal Working Capital small business loan is transferred into your PayPal account automatically.
Unlike small business loans through other banks, applying for a PayPal Working Capital small business loan takes less than 5 minutes, and requires no personal guarantee or credit check.
The Fine Print
PayPal’s Working Capital Loan repayment is a portion of your daily sales that you can choose. If you don’t have sales on a particular day, you don’t make a payment. You can make no payments for several days in a row, but a minimum payment is required every 90 days, regardless of sales through PayPal.
Automatic payments on your loan happen the day after sales are received, so make sure to maintain a balance that is at least the share of sales you owe as payment. If you withdraw too much money and the repayment share of sales cannot be withdrawn, PayPal will take catch-up payments until the account is current again.
PayPal does not charge a fee for catch-up payments, however multiple payments may be withdrawn from your account at irregular times to get your account caught up.
If, after 30 days, catch-up and uncollected payments account for more than 50% of the cumulative balance due, your loan could go into default, the entire balance could become due, and limits may be placed on your account.
Even though payments on a Working Capital loan are extremely flexible, there are minimum requirements. You’re required to repay 10% of your total loan amount (loan + fixed fee) every 90 days, regardless of your PayPal sales. If you are falling behind on the 90-day repayment requirements, PayPal will alert you, so you can catch up.
If your loan falls into default, either from too many catch-up payments or 90-day repayment requirements not being met, your full balance may become due, and PayPal may debit your funding sources.
Can You Apply For Another Loan While Repaying a PayPal Loan?
You cannot apply for another PayPal Working Capital Loan while repaying an existing loan. However, as few as 3 days after repayment is complete, you are welcome to apply for a new loan.
It is not wise to apply for a working capital loan from another bank while in repayment, as any incoming funds from the loan will be treated as income, and as such while have your repayment percentage withdrawn from it.
Will PayPal Withdraw A Payment If It Will Make My Account Balance Negative?
PayPal will never withdraw money to repay a working capital loan if it will bring your account balance below zero. PayPal will deduct catch-up payments each time you have a PayPal balance, until the amount due is paid in full.
If, after 30 days, if the catch-up and uncollected payments account for more than 50% of the cumulative balance due, your loan can fall into default. If your loan falls into default, the entire balance could become due, and PayPal may debit your funding sources, such as your bank account or credit card to fulfill payment. Additionally, limits may be placed on your PayPal account.
How it Stacks Up Against Competition
OnDeck offers fixed daily payments, loans range from $5,000 to $250,000, and terms from 3 to 24 months. The origination fee is 2.5%, and you must have at least $100,000 in annual revenue to qualify.
For a more traditional small business loan, but with the option to make 2 monthly payments, Fundation offers loans up to $150,000 for working capital, and up to $500,000 for business expansion. Terms for working capital are offered up to 2 years, and for business expansion are 2 to 4 years. APR ranges from 7.99% to 25%.
PayPal May Be the Right Fit For You
The PayPal Working Capital Small Business Loan can seem both confusing and flexible. But if you have a significant amount of sales brought in through PayPal, and can allocate 30% of those sales daily to repayment, you could score a very low fee and interest rate on a working capital loan for your small business.