Oct 252014

Is the Paypal Working Capital small business loan any good? It can be for some sellers. I’m going to break down the loan program so you can evaluate its pros and cons and see if its right for you. First I’ll discuss the fees and then compare them to other offers on the market. If you’re still interested after that I’ll go into how you can get approved for the program.

Generally, this loan is good for small business owners and eBay sellers who don’t have a low-interest business credit card. Especially those with bad credit. If you’re one of those people, but you’ve also got a golden investment opportunity that needs a quick loan to get started, this may be the answer.

How it Works

The maximum amount you can borrow is 8% of your annual Paypal sales. This means that if you accepted $10,000 in payments last year you would be eligible for an $800 loan. However, if you processed $100,000 in payments in the previous year, you would be able to get a loan for up to $8000

If you get approved for a loan the amount is immediately deposited into your Paypal balance. From there the loan is repaid by deducting a percentage of incoming payments and putting that deduction towards the loan amount. This means that Paypal will be automatically taking their cut on any of your incoming money before it is added to your balance until the loan is repaid.

The Fees

Unfortunately, the fee structure is kind of complex. It works on a tiered pay back scale. Here’s the example shown on Paypal’s website to explain it.

Paypal working capital fee chart.

What it’s showing is an $8000 loan for a business with a $100,000 yearly income. The fees that will be charged are based on a repayment percentage that you can choose. Each percentage has a flat rate fee associated with it.  This is in contrast to a typical credit card or small business loan which would charge monthly payments with an associated interest rate. So we can accurately compare the two, I’ll show you what the interest rate of this Paypal loan would be if it were charging fees as a more traditional interest rate.

  • 10 / 90 = 11.9%
  • 15 / 85 = 7.6%
  • 20 / 80 = 5.6%
  • 25 / 75 = 4.4%
  • 30 / 70 = 3.7%

As you can see those are really not bad rates at all. The top bracket is on par with a medium rate credit card. As you progress down the tiers the cost comes in line with a small business loan from a bank. At the bottom of the list that 3.7% rate is extremely competitive.

Other Loan Alternatives

When it comes to these types of quick capital loans Paypal is not the only game in town. Actually, there were companies doing this well before Paypal even started. There’s also Kabbage (2011) and On Deck (2007).

Kabbage – Typically charges  8% to 24% on loans that are repaid within 6 months. Payments are made in 6 installments, one per month.

OnDeck – Typically charges 15% on loans that are repaid within 6 months. Payment is made by an automatic deduction from your bank account.

The pros these alternatives offer are that you don’t have to have a consistent Paypal history, they loan larger amounts of money, and they don’t deduct their cut from your incoming payments before you receive them.

The cons they have are higher fees, shorter repayment schedules, and they don’t show you loan fees up front like Paypal.

Applying for the Program

If you’re interested in applying for this type of loan with Paypal you can do so here. The process looks like this.

Paypal working capital application page.


Once you’ve logged in to your Paypal account you’ll be taken to a page that asks you to confirm your personal and business information. Some of it will be pre-filled for you (I blanked mine out in the example). Then you click the “view my offer” link at the bottom of the page. You’ll then see the exact terms that Paypal is willing to offer you.

Note that you can cancel the process at any time if you don’t like the offer. If you do like it though, choose one the repayment terms and proceed. You’ll be taken to the contract review page where you’ll be asked to confirm your application. Finish that and your loan is done. You’ve got your funds as easy as that.

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