PayPal Working Capital Review: Convenient, but Still a Cash Advance

If you’re an active PayPal merchant, you might be able to qualify for a business loan through PayPal’s working capital program. And unlike loans from other lenders, your PayPal sales history matters more than your credit score. Sounds perfect, right?

Well, you know how they say if it sounds too good to be true, it probably is? That’s kind of true here. Yes, you can get financing based on your PayPal sales―but it will likely cost you more than other types of business loans would.

So should you get a PayPal Working Capital loan? We’re here to help you decide. We’ll tell you about the pros and cons of Paypal’s working capital, give you the details about its loan, and warn you about some important details.

First things first: If you’re not already using PayPal as your credit card processing company, then PayPal Working Capital won’t be the right fit for you.

You have to have had a PayPal Premier or PayPal Business account for at least three months to qualify for a PayPal Working Capital Loan. Plus, you have to process a substantial amount of sales through your account―at least $20,000 in annual PayPal sales for a Premier account, or $15,000 for a Business account.

If you don’t meet those qualifications already, then we suggest you look elsewhere (our list of the best small-business loans can help). Because, to be blunt, PayPal Working Capital loans aren’t good enough that you should work toward getting one. There are much better options out there. So don’t start using PayPal just because you hope to get working capital.

What if you already can qualify though?

In that case, we’ll admit that PayPal loans have some appeal. You don’t have to have a great credit score to get one, because there's no credit check. The other borrower requirements are pretty low too. Plus, PayPal doesn’t require you to submit tons of extra documents or paperwork, so the application and funding process is fast and easy.

All of that sounds great, but it doesn’t necessarily make up for the elephant in the room: PayPal Working Capital works just like a merchant cash advance (MCA), even if PayPal calls it a loan.

And like any merchant cash advance, that means it’s pricey and uses a percentage-based repayment structure that can cause big problems for cash flow.

Now, PayPal Working Capital has the benefit of coming from a company that we trust more than most merchant cash advance providers. And we’ve seen reports that you can get surprisingly low fees as a repeat borrower. Plus, PayPal might fund you when other lenders won’t. Put simply, PayPal Working Capital probably won’t get you the best loan deal out there. But given its low borrower requirements and convenience, you might decide it’s worth using anyway.

Assuming you still like the sound of a Paypal loan, what can you expect to actually get?

PayPal Working Capital offers only one loan product. The loan amounts, fees, repayment terms, and retrieval rates can vary, of course―but you won’t get to choose between a term loan and a line of credit, for example.

Unfortunately, PayPal prefers to leave a lot to the imagination. It doesn’t provide many specifics about its loans.

PayPal provides the most detail about loan amounts. PayPal loans start quite small, in the hundreds of dollars, and get up to $250,000.

Your own loan amount will depend on your sales volume. The more you sell with PayPal, the more you qualify for. More specifically, you can get up to 35% of your annual PayPal sales amount.

Note that PayPal doesn’t charge any kind of interest rate on your loan. Instead, you pay set loan fees, calculated as a percentage of your total loan amount. That means you won’t accrue interest over time, but it also means you can’t save money by repaying your loan early.

PayPal doesn’t publicize its fees (a frustrating lack of transparency). But in our research, we’ve seen business owners report a wide range of fees―everything from 2% to 25%. For context, the lower end of that range would be a shockingly good deal for a merchant cash advance.

You will have some ability to influence your fees. PayPal will give you a choice of retrieval rates (which we’ll cover in just a moment). If you choose a lower rate, you’ll pay more in fees. Opt for the higher rate, and you get lower fees.

Also, if what we read from borrowers was correct, you may get offered lower fees on a second loan than on your first loan.

You’ll have to pay back those fees plus your loan amount within a specific loan term. But again, PayPal doesn’t advertise what those terms are. It simply refers to terms that are less than 12 months long and more than 12 months long.

By the way, PayPal Working Capital gets away with calling its products loans (instead of merchant cash advances) because they have set terms. A true merchant cash advance has expected repayment timelines but not a specific term.

Of course, PayPal’s term won’t benefit you as a borrower. As we said above, you don’t get any discount for repaying your loan early or anything. It just gives PayPal a guarantee that it will get paid, even if your sales drop.

Which brings us to the most important detail of PayPal Working Capital Loans: repayment.

Like a merchant cash advance, PayPal Working Capital loans get repaid by automatically taking a percentage of your credit card sales (usually called a retrieval rate). In this case, of course, it’s specifically your PayPal credit card sales.

As you can probably guess, PayPal doesn’t list its typical retrieval rates. In one example loan on its website, the repayment percentage is 20% (on the high end for a merchant cash advance). So if you make a sale for $10, PayPal automatically takes $2.

Keep in mind that your retrieval rate is a percentage of your sales, not your profits. So that repayment percentage includes tax and shipping costs (but not PayPal processing fees). You should know that if a customer gets a refund, PayPal keeps the percentage it took.

So you should think carefully about whether percentage-based loan repayment will work well for your business. If you regularly have customers return products and request refunds, you’ll end making a lot of payments and getting little revenue. Likewise, if you collect a lot in taxes and shipping, you could end up losing more of each sale than you expect.

We also want to warn you that PayPal requires you to pay either 5% or 10% of your loan every 90 days (your percentage will depend on your loan term). Hopefully, you make that percentage through credit card sales. But if sales drop, you’ll still be on the hook for that percentage―just like you’ll have to pay the full loan amount at the end of your term if your sales didn’t cover it.

Nope, a PayPal business loan shouldn’t have an effect on your personal credit score (or on your business credit score, for that matter).

PayPal doesn’t do a credit check when you apply, and it doesn’t report to any credit score―but you won’t be able to improve it either.

No, you can have only one PayPal loan at a time. After you repay it in full, you’ll have the opportunity to apply for another one.

If you want a PayPal business loan, you can start an application on PayPal’s website (assuming, of course, that you meet the borrower qualifications we discussed above). Here’s how:

1. Log into your PayPal account
2. Answer a few questions about yourself and your business
3. Submit your loan application
4. Wait to get approved.

PayPal doesn’t say how long this takes. Typically, though, online lenders get back to you within a few days at most.bureaus when you make payments. So you won’t take a hit to your credit

Once you’ve approved, you can get money in your PayPal account in just a few minutes. Your loan repayment will start 72 hours after that.

PayPal Working Capital isn’t our favorite lender by a longshot. It doesn’t provide tons of details about its financing―and the details we have make it seem like just another costly and confusing merchant cash advance.

At the same time, it does make financing more accessible than other lenders do. It offers a convenient application and low borrower requirements. So we can see why you might choose to borrow from PayPal, even with the downsides.

Just make sure that if you choose to apply, your budget can handle the percentage-based repayment.

Want an alternative to PayPal Working Capital that’s still quick and accessible? Find one on our list of the best fast and easy business loans.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.