PayPal Working Capital: Requirements, Pros, and Cons

PayPal Working Capital: Requirements, Pros, and Cons
By max June 23, 2023

PayPal has gained immense popularity for offering a digital wallet to facilitate smooth and seamless transactions for merchants worldwide. Accepted by many nations, PayPay is an ideal payment gateway for domestic and international transactions. It offers payment processing and nearly all kinds of transaction-related services. The fintech company has added a new service to its list, “PayPal Working Capital and PayPal Business Loans”.

These are for merchants with short or no credit history. Both have different eligibility requirements, repayment terms and uses. Stick around to discover more about PayPal Working Capital and Business Loans, their uses, and eligibility criteria.

PayPal Working Capital Loan Explained

To meet your short-term cash needs, PayPal working capital loan is your best bet. You can borrow money from the company to pay for the raw materials, machinery, and issue paychecks to your employees. The flexible repayment structure makes working capital loans ideal for merchants that don’t want the burden of repaying a fixed amount every week.

For the repayment, the company calculates the amount based on several parameters, including the lending amount, your total sales, the percentage of the sales you are ready to give for loan repayment, your PayPal history, and more.

Fortunately, PayPal offers a simple and flexible funding process, which doesn’t affect your credit score. If your application is approved, the funds will be transferred to your PayPal wallet within minutes.

How Much You Can Borrow and At What Cost?

Avoid PayPal Fees

The maximum you can borrow from PayPal as a working capital loan is $150,000, which is for first-time borrowers. For the subsequent loans, your limit increases to $200,000. The minimum amount you must borrow is $1000.

PayPal’s working capital is an ideal choice for many. Thanks to its flexible repayment policy and a fixed fee, without any hidden cost or interest. Here’s what it considers when calculating this fee:

  • Your sales and account history on PayPal
  • The repayment percentage from your sales you request
  • Your advance payment

PayPal automatically deducts a percentage of your income from the sales until the entire amount is paid in full. This means you won’t pay the loan if you didn’t make any income, although merchants are supposed to pay a minimum loan repayment amount every 90 days (in case they didn’t make any sales for the three months).

The repayment amount in that case is 10% of your cash advance. PayPal allows merchants to repay the loan money in advance without incurring any extra charges. Fortunately, the fluctuation in your sales volume or revenues won’t impact your repayment percentage. Once it’s fixed, you can rest assured that the same repayment pattern will be followed throughout your repayment plan, i.e. until the loan is paid.

Requirements and Eligibility

As mentioned before, whether your application is accepted or declined is determined based on your history with PayPal, current sale volume, and intended use of its working capital, etc. You don’t need to show your credit score or any credit history for approval. This means that most merchants with a registered business and a PayPal business or premier account are eligible for PayPal working capital loan. But there are a few conditions, such as:

  • You need to sign up for the PayPal Business or Premier account and use it for at least three months to be eligible for its working capital loan.
  • You must process sales worth $20,000 (Premiere Account) and $15,000 (Business Account).
  • You must not have any outstanding PayPal loan at the time of application.

Since PayPal will deduct money from your revenue through the app, it doesn’t require any extensive documentation. There’s no rigorous underwriting required, either. As a result, the application is approved quickly and the funds are available in your PayPal balance within a short period. PayPal doesn’t work on the interest model. Once you have paid the fixed fee, you can repay the loan amount in multiple installments or in one go (whatever you prefer).

PayPal Business Loan Explained

Starting from $5000 to $10,000 for first-time borrowers and up to $150,000 for repeat borrowers, PayPal business loans are for small businesses that need to expand their operations outside the geographic boundaries, implement new technology, or install the latest equipment. Like Working Capital loans, PayPal business loans do not come with any additional fee for early payment or payment processing. You only pay a fixed fee. You can check your eligibility for small business loans without affecting your credit score.

However, unlike Working Capital, small business loans are fixed-term loans where you make predictable payments weekly.  With the fixed fee structure, you will have peace of mind knowing the total you will pay monthly. The PayPal business loan has different eligibility requirements than its working capital counterpart.

Eligibility for PayPal Business Loan

PayPal doesn’t require any extensive documentation or paperwork to approve your loan application. Based on your profile, it will pass your application if you meet the following conditions:

  • You must be running the business for at least nine months.
  • Your revenue from the business should be $33,300 or above.
  • You should have a FICO score of 580 or above.
  • You have a PayPal business account.

You can choose the term of the loan, which can be anywhere between 17 and 52 weeks, depending on your loan size. Read the term and conditions of the loan. If you agree to the fee and repayment structure, you will get the amount transferred to your PayPal the very next day.

To check whether your business is eligible for the PayPal business loan, you can use its website.

How to Apply for a PayPal Business Loan?

PayPal has a 5-10 minute questionnaire that will help you know your business’s eligibility for the loan. Once you have selected the term and loan amount, you can sign a contract with the company electronically, allowing it to automatically deduct the fixed amount weekly from your linked bank account. You select the day when the weekly amount is withdrawn from your bank. Here are the steps for applying:

  1. Log into your PayPal account using your login credentials
  2. Verify your business and contact details. PayPal requires this information to check your credit and eligibility for the loan.
  3. Although there’s no additional documentation required, PayPal might request you to submit more information, such as your bank statements, credit score reports, etc. Keep these handy.
  4. If your application is approved, you will get details of the loan. Check the details and agree only if you believe the loan terms are flexible.

Business Loan Vs. Working Capital: Which is Better?

To know which loan is better, you need to first understand the difference between the two.

  • Loan Amount: In PayPal business loans, you can secure up to $150,000 if you are a repeat borrower or $100,000 if you are borrowing for the first time. The limit for the Working Capital for repeat borrowers is $250,000, while first-time borrowers can apply for a loan up to $150,000.
  • Funding: You will get funding within minutes of approval for a working capital loan, while the same for a business loan may take a day after your application is approved.
  • Credit History: A PayPal business loan requires your credit reports and credit history, as the payments are deducted from your bank account. A working Capital loan, however, doesn’t require any credit history.
  • Repayment: The loan is deducted from your revenues on PayPal if you choose working capital. The repayment plan is flexible. In business loans, however, a weekly payment is deducted from your bank account irrespective of how much you earned for the week.
  • Eligibility Requirements: You must report an annual income of $33,000, have a 9-month-old business, and have a PayPal business account to qualify for the business loan. For a working capital loan, you must have a PayPal business or premier account, which is at least three months old and a record of processing $15,000 in sales on PayPal in a year. If you have a Premiere account, the sale must be at least $20,000.

Are There Any Risks?

Although PayPal payments are flexible, the term for the PayPal business loan is quite short compared to the other loans offered by banks and private lenders. Besides, there’s no information on the fixed fee available on the website. You need to submit an application first to know how much you will repay. Also, you don’t get any advantage for paying early. There’s no fee deduction. Lastly, the borrowing limit for first-time borrowers is pretty low.

Bottom Line

Finding a loan provider with a bad credit record or no credit history is pretty challenging for small business owners. If you use PayPal to conduct monetary transactions, you might be eligible for either of its loans. PayPal’s funding within 24 hours seems pretty impressive for businesses that need immediate financing. However, if its term and fee do not seem suitable, you can consider alternatives, like business lines of credit and invoice financing.