PayPal is a company known primarily for their online payment system, which serves as an alternative to traditional paper checks and cash. PayPal was launched in 1998 as a money transfer service for a company called Confinity. Later, Confinity merged with an online bank known as X.com under then-president Elon Musk. Eventually, Musk decided that money transfer was the future of the company, and he terminated the other internet banking services that X.com provided. In 2001, the company took on the name PayPal and began a period of rapid expansion. Eventually, a few other services were added back into the mix. One of those is their business loan service, which PayPal calls Working Capital. Consumers that choose PayPal should remember that they must have a credit score of 550 or higher.
The biggest draw of the PayPal Working Capital loan is that it avoids much of the hassle and complexity involved in the business loan process. Since these loans are only available for businesses that use PayPal processing, loan payments are paid directly as a percentage of future sales. Applicants select the percentage of sales to apply to the loan, with a minimum of 10 percent every 90 days. This covers both the loan and the loan fee, which is single fixed amount. Additional payments toward the loan can be made at any time and the loan can be paid in full without prepayment penalties. The balance of the loan is paid automatically as a percentage of incoming sales at the repayment percentage that the business owner has selected, which means if sales go down, the percentage deducted for the loan goes down as well. This protects business owners from being stuck with a huge payment they can't afford when they have a bad week or month.
There is no traditional periodic interest rate, which makes this loan program fairly unique. Instead, applicants are charged a single fixed fee on the loan, the amount of which is determined by the individual business's sales history, the amount of the loan, and the repayment percentage. A higher repayment percentage will lower the fixed loan fee. Surprisingly, eligibility has nothing to do with a business's credit score. Instead, it is based solely on the sales history that the business has with PayPal. This is great news for companies that might have bad credit who can now get access to badly-needed funds for renovations or equipment that they otherwise couldn't afford.
Because of the way this system works, once the application process is complete, funds are transmitted to the business's account within a matter of hours. It is hard to think of a loan process that works faster than PayPal Working Capital. And since this program is available to businesses that process payments through PayPal, it is basically available just about anywhere in the world.
Perhaps the biggest drawback to PayPal's Working Capital loan program is that it only provides loans up to 15 percent of total sales in the past 12 months, up to $97,000. This makes it a suitable option for smaller businesses and can help with renovations or equipment purchases, but it simply won't be enough for larger financial needs. On the other hand, traditional business loans often go up into the millions of dollars. Other limitations include:
Paying back the loan is also inflexible. Businesses can only repay the loan as a percentage of the sales that are processed through PayPal. If sales are high one month, they can make additional payments but only through the PayPal system. There is no other way to repay the loan, so businesses are essentially stuck using PayPal processing for the duration of the loan.
The website for Working Capital is a bit scanty on specific information. Though a video tutorial is provided to guide people through the loan process and a FAQ answers the most basic questions, there is some information that is simply not available without going through the application process. Most significantly, the website gives no idea what to expect with the loan fee. A single fixed fee is added to each regular loan payment, but the website only says that this fee is based on sales history, loan amount, and the repayment percentage.
It is also difficult to track down a lot of customer feedback about the program. Customer testimonials and reviews are relatively scarce compared to other loan programs. This might be because Working Capital is a lot newer than traditional business loan companies. What is out there seems to be fairly positive, but more personal information would be helpful.
Since the repayment amount is a percentage of sales, it is almost impossible to know how much a business will be able to put toward the loan in any particular month. While there is an upside to this, the downside is that it can make it hard to know how long it will take to pay off the entire loan. This might add to overall anxiety when there is a slump in sales.