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How to Get a Small Business Loan.
What are They?
Provider of short-term loans to businesses that process payments on PayPal.
How popular is it?
As of May 2015, more than $500 million in loans to over 40,000 U.S. small businesses.
Who will qualify for a loan?
Businesses with at least 3 months history as a PayPal merchant and who have processed above $20,000 on PayPal in the last year. No credit check is required.
Who are they right for?
Businesses that process payments on PayPal and need virtually instant access to small loan amounts and a flexible repayment plan.
Any business that processes payments on PayPal and meets the above qualification criteria is eligible.
Personal Guarantee required?
5 minutes to complete application. Funds are instantly available in your PayPal account if you’re approved.
Where do they lend?
All 50 states, UK, and Australia.
How much do they lend?
$1,000 to $85,000 (the loans come from WebBank, PayPal’s lending partner).
How much can I qualify for?
PPWC typically provides loans between 4-15 % of your business’ annual PayPal sales.
For how long?
As long as it takes to pay back the loan. When you apply for the loan, you choose what percentage (10 % to 30 %) of your PayPal revenues will be deducted each day to satisfy the loan. You must pay back at least 10 % of the loan every 90 days.
Cost/Interest rate of loan?
The effective APR of a PayPal Working Capital loan is 15 % to 30 %.
How do payments work?
PPWC takes a fixed cut from your PayPal sales daily. You set the percentage when you apply for the loan.
Name, social security number, business tax ID, and other business information, such as your business address, length of time in business, and purpose of loan proceeds.
PayPal Working Capital (PPWC) has three primary benefits for PayPal businesses:
- PayPal businesses can easily qualify – Since PPWC loans are based on your PayPal sales history, your credit score and other financials are not evaluated during the application process. This is a big advantage over other lenders that require you to have a good credit score to qualify.
- Instant funding – PPWC is among the fastest source of funds of all the loan providers we reviewed. Once you submit your online application, the loan amount that you qualify for is instantly deposited into your PayPal account. You can withdraw the funds right away and use them as you wish.
- Flexible repayment – You get to choose the daily repayment percentage (the higher repayment percentage you choose, the lower the fee you have to pay) spanning from 10 % to 30 %. If you don’t make any sales on some days, the payments automatically resume on the next day that you have PayPal sales.
The Annual Percentage Rate (APR) of a PayPal Working Capital Loan varies from about 15 to 30 %. The cost depends on the amount of money you borrow, the repayment percentage you select, and the volume of your sales. This cost beats that of short term lenders like OnDeck and Kabbage. However, it’s much more expensive than a bank loan.
A drawback to PPWC is the small loan amounts–about 4-15 % of your annual PayPal sales at a time. On average, this is an $9,500 loan for a business that makes $100,000 in PayPal sales. Seasonal or newer businesses may qualify for even less, so PPWC is not a viable option for financing larger purchases.
You’re also obligated to continue using PayPal to process payments until you pay off the loan. If you decide to switch payment processors while you have an outstanding loan, your balance becomes due immediately.
- Personal Credit Score: Not required. Your eligibility is based on your PayPal sales history, not on your credit score or other financial criteria. If you’re repairing your credit and need tips on getting a loan, click here for our guide on Bad Credit Business Loans.
- Years in Business: N/A.
- Revenues: You can typically borrow somewhere between 4% to 15% of your annual PayPal sales.
- Industry Exclusions: None. If you are approved to accept PayPal payments and meet the below qualifications, then you should not be excluded from PPWC.
- Other Qualifications: At least 3 months history as a PayPal merchant, and you must have processed between $20,000 and $10 million on PayPal in the last 12 months. If your business is less than 12 months old, you must still have processed between $20,000 and $10 million in PayPal sales for as long as you’ve been operating. If you own a startup and are looking for a loan, check out our article on Startup Business Loans: The 9 Best Options.
Collateral Required? No.
Does the loan require a personal guarantee – From who? No. You do, however, agree to continue using PayPal until the loan and fees are repaid in full. If you stop using PayPal or direct your payment volume away from PayPal, the balance may become due immediately. In addition, if you default, PayPal can seize funds from accounts that are connected to your PayPal account.
Upfront Fees – None.
Structure of Debts: You are charged a fixed loan fee for a PPWC loan. You must pay back the principal and the fee with fixed daily deductions from your PayPal sales. There’s no maturity date for the loan.
Servicing Fees: None.
Are interest rates variable? Not applicable.
How Loan Costs Work With PayPal Working Capital
The cost of a PayPal Working Capital loan is comprised of three parts:
- Principal – This is the amount of money you borrow from PayPal.
- Loan Fee – All PPWC loans have a fixed loan fee. The fee is based on your business’s PayPal sales history, the loan amount you apply for, and the daily repayment deduction percentage you select. All else being equal, the faster you pay back the loan, the lower your total fees will be. The table below shows sample fees.
- Daily Repayment Deduction % – You pay back the principal + fee with a fixed daily deduction of your PayPal sales. You select the daily repayment percentage (anywhere from 10 % to 30 %) when you apply for the loan.
Below is an an example from PayPal showing the fees that would be charged for a business that makes $100K in annual PayPal sales and applies for an $8000 PPWC loan. If you make more or less than $100K in annual PayPal sales, your fees would change accordingly. For example, if you made $300K in annual PayPal sales, your fees would be 3 times less because you will pay back the loans 3 times as quickly.
Knowing the loan fee and repayment percentage makes it easy to understand the total dollar cost of the loan, but it does not make it easy to compare PPWC loans with other loan products. To do that, you need to convert the cost into an Annual Percentage Rate (APR). Those of you who are familiar with a home loan or auto loan have probably heard interest rates on those loans quoted as an APR. APR gives you the cost of a loan over one year, expressed as a percentage.
Using the above example provided by PayPal, here is what the effective APR and loan fees would be for an $8,000 loan for a business with $100,000 in annual PayPal sales.
- 25.81 % APR and $949 loan fee if you choose 10 % repayment.
- 25.93 % APR and $604 loan fee if you choose 15 % repayment.
- 26.06 % APR and $445 loan fee if you choose 20 % repayment.
- 26.26 % APR and $354 loan fee if you choose 25 % repayment.
- 26.37 % APR and $281 loan fee if you choose 30 % repayment.
Here is what the effective APR and approximate loan fees would be for an $8,000 loan for a business with $300,000* in annual PayPal sales:
- 28.24 % APR and $316 loan fee if you choose 10 % repayment.
- 27.32 % APR and $201 loan fee if you choose 15 % repayment.
- 26.91 % APR and $148 loan fee if you choose 20 % repayment.
- 26.82 % APR and $118 loan fee if you choose 25 % repayment.
- 26.68 % APR and $98 loan fee if you choose 30 % repayment.
You can input your own business data in the calculator below and figure out what the approximate APR would be for your PayPal Working Capital loan.
As you can see from these examples, the APR for a PPWC loan is under 30 %. This is less than the APR of Square Capital, a similar loan product for Square merchants in which the borrower receives an advance and pays it back with a fixed portion of daily sales. PayPal’s APR also beats short-term providers such as OnDeck and Kabbage, which charge 40-80 % APR. PPWC’s APR is higher than a bank loan, but keep in mind that it’s also much quicker, more flexible, and easier to qualify for than a bank loan.
These are the reasons that PayPal merchants like PayPal Working Capital. Jeff Caruso, owner of Crisloid and a PPWC borrower, told us that a bank was not the best fit for his growing small business. He was a PayPal merchant since 2010 when he applied for a PPWC loan. He qualified in just a few hours and loved that he could select 15 % daily repayment because he knew that would work with his business’ profit margins. If his business had a bad week or a few days without sales, he loved the peace of mind of having no penalty.
*You might be wondering why the business making $300,000 has a higher APR even though the fees are lower. This is because the more profitable business pays the principal down much faster, effectively borrowing for less time. The reduction in fees are not enough the counter the much faster speed at which the business pays back the loan. Don’t let this confuse you. Even though the $300K business has a higher APR, it pays lower fees and thereby saves money.
PPWC’s application process is extremely quick for PayPal businesses. You simply enter in your business information on the online application and choose how much you want to borrow and your daily repayment percentage. If your application is successful, the funds are securely transferred right away into your PayPal account. They are immediately available for you to use.
What documents need to be provided? None. On the online application, you simply enter in your name, social security number, business tax ID, and other business information, such as your business address, length of time in business, and purpose of loan proceeds.
Do they need online access to any systems – Quickbooks, PayPal, bank accounts? Yes, they need access to your PayPal account.
Is there a credit report pull? If so at what point in the process? No.
Does the lender report to the credit bureaus? No.
If so – What credit reporting service do they use? N/A.
Loan Sizes and Terms
What is the minimum / maximum length of loan? The length of your loan depends on your annual PayPal sales volume, the amount of your loan, and your daily repayment percentage. Automatic deductions are taken from your PayPal sales receipts until the loan and fee are repaid in full.
What is the minimum / maximum amount of the loan? The minimum amount is $1,000, and the maximum amount is $85,000. You can borrow from 4-15 % of your annual PayPal sales volume.
Payment Methods & Schedule
Schedule of Payments: Payment is deducted each day that you process sales through PayPal.
Payment Initiation: A fixed percentage of your previous day’s PayPal receipts is automatically deducted from your PayPal account by WebBank, PayPal’s lending partner.
Method of Payment: Automatic daily deduction from your PayPal account.
Penalties for Missing Payments: None. If you don’t have sales on some days, there’s no penalty. Your payments resume on the next day that you do have sales. If PayPal initiates a deduction, but the account balance is insufficient because you withdrew money, PPWC will withdraw the necessary funds the next time you have a PayPal balance. Unless this happens regularly, there’s no charge for such “catch up” payments. The loan agreement requires you to continue processing payments through PayPal until the loan is repaid.
You must pay back at least 10 % of the loan every 90 days for the first 18 months. For example, if you borrow $10,000 ($9000 loan + $1000 fee), you must pay back at least $1000 every 90 days for the first 18 months. After that, if there’s still an outstanding balance on the loan, there’s no minimum payment. PayPal told us that most borrowers easily meet this requirement.
What Happens on Pre-Payment? There is no pre-payment penalty if you want to pay more than the daily repayment percentage, but you also don’t save any money by paying off the loan early. The fees and total repayment amount remain the same, regardless of when you pay off the loan.
PayPal has phone support for borrowers and loan applicants. There is an FAQ page as well.
US-based or International? US-based. PayPal is located in Palo Alto, CA.
Support Hours: Phone support is available Monday-Friday 9 AM – 8 PM EST.
Other Lending Products
PayPal doesn’t offer any other lending products for businesses.
Need some money for your business? Click here to get our FREE Guide:
How to Get a Small Business Loan.
The Bottom Line
PPWC is a good borrowing option for merchants that need small amounts and have lots of PayPal sales. The advantages it offers are easy qualification criteria, virtually instant access to funds, and a flexible repayment plan. No credit check is involved as eligibility is based solely on PayPal sales data. If you qualify, you can access the funds right away from your PayPal account, and you can pay back a small fixed percentage of the loan daily from your PayPal receipts.
On the downside, PPWC extends small amounts of capital. You can expect to receive a loan that’s no more than 15 % of your annual PayPal sales, less if you have a seasonal business. The interest rates are higher than what banks and SBA lenders charge. However, if you just need a quick jolt of capital and are doing a decent amount of PayPal sales, PPWC is actually a great value.