10 mins

PayPal Working Capital Review

Chris Grundy
Nov 18, 2017

As an eCommerce entrepreneur, you will certainly be familiar with PayPal, and it is likely that you offer your customers a PayPal payment option, but did you know that you can also borrow money from PayPal to finance your business? This PayPal Working Capital review will provide you with a comprehensive insight about this option.

PayPal started lending to businesses in 2013 and the service became immediately popular. By October 2015 the company had issued $1 billion in working capital loans, and the PayPal Working Capital loan volume is continuing to grow at around $ 3billion a day.

There are many good reasons why your business might benefit from a loan: you might use it for purchasing more inventory to drive business growth; to smooth out fluctuations in your sales patterns perhaps because of seasonal effects; or to finance a new business opportunity.

Loans aren’t, however, always a good thing. The price of a loan can be considerably higher than you think, especially if you run into a long term downturn in your sales volume and you find it difficult to meet your repayments.

It is always important to take out a loan with your eyes wide open to the costs. Some online lenders charge punishingly high interest rates with APRs as high as 134%, which can be dangerous territory for any business.

Today there are far more choices than just using the banks to obtain an unsecured business loan.

Over the past few years, a wide variety of online lending models has been developed which are substantially different from traditional bank lending, particularly in the way the credit worthiness of the borrower is determined. This is why we want to provide you with this PayPal Working Capital review.

While traditional banking uses credit rating agencies, online lenders use online activities such as your PayPal account.

While growing numbers of entrepreneurs are using a PayPal Working Capital loan for financing their businesses, peer-to-peer business lending is also proving popular.

In this PayPal Working Capital review, we will look at the nuts and bolts of PayPal Working Capital loans and see how they compare with peer-to-peer loans with specific reference to Bitbond, which tends to lend to similar kinds of businesses.

PayPal Working Capital Review – The nuts and bolts

  • Cash into your account ➞ PayPal working capital loans provides cash directly into your PayPal account. You can use them to make payments directly from your PayPal account or you can withdraw the money to your bank account.

  • Charges ➞ The money you borrow is interest free. Instead of paying interest you will be charged a fixed fee with the amount charged depending on several factors: The size of the loan; the time over which you elect to repay it; and your PayPal sales history.

  • Repayments ➞  Loan repayments are taken directly from your PayPal sales as a fixed percentage of the sales value. You can choose the percentage to be deducted subject to the restriction that 10% of the principal loan, plus the fixed charge, must be repaid every ninety days. Note that you can repay the loan at any time without penalty. Repayments are deducted the day after sales revenue has been credited to your PayPal account, so if on any day you don’t make a PayPal sale, your PayPal account won’t be debited the following day.

  • Penalties ➞ If you fail to meet the minimum repayment of 10% of loan and charges in any 90-day period, the full amount of the outstanding balance will become due immediately.

PayPal Working Capital Loan vs Bitbond Peer-to-peer Business Loan

PayPal Working Capital loans provide an alternative way for online businesses to raise cash but, as they work in a similar sphere to peer-to-peer business loans from Bitbond, it is useful to compare the two.

1. Structure

With peer-to-peer loans, instead of borrowing from a giant corporation such as PayPal, you are borrowing from individual lenders who are happy to invest in return for higher yields than they would receive from investing in a savings account.

Dealing with a giant corporation such as PayPal may have advantages, but when you are a tiny cog in such a huge wheel, it might feel a little impersonal. For instance, the PayPal Working Capital Customer Service does not have a particularly good reputation.

Essentially it depends on which kind of structure you prefer working with; some prefer one and some prefer the other.


2. Maximum loan amounts

The amount you can borrow from PayPal is capped at 15% of your annual PayPal sales, in other words if you wish to borrow £6,000 you need annual PayPal sales of £40,000.

With a Bitbond loan there is no similar restriction. While your Bitbond credit rating will take account of your online financial history, including your PayPal account, it doesn’t directly cap the amount you can borrow.


3. Control of account

PayPal takes repayments directly from your PayPal sales.

If you don’t make any sales then no repayment will be taken, and if there are insufficient funds in your PayPal account for the payment to be made, for instance, you might have spent or withdrawn an amount from your account which left it with insufficient funds to make the full payment, only a partial payment will be taken, leaving you with a “catch-up” sum to repay.

This could mean you fail to repay 10% of your loan over 90 days with associated penalties. With Bitbond you make regular monthly payments so, as long as you maintain those, you won’t encounter any problems.


4. Loan Term

A PayPal Working Capital loan doesn’t have a specified loan term as the time it takes to repay it is determined by the combination of your repayment percentage and you PayPal sales volume.

There is, however, an 18-month time limit: your loan must be repaid within this period. With Bitbond there is much more flexibility, and loan terms of 6 to 36 months are available. So, if you are looking for a longer term loan Bitbond is a better choice.


5. Costs

The interest you are charged on Bitbond depends on your Bitbond rating. This depends on your disposable income, online accounts, and your Bitbond payment history. Interest rates range from 7% to 35%. There is also an initial 1-3% fee which depends on the loan term.

With PayPal there is a fee rather than interest charges. The fee depends on the percentage of your sales you put towards repaying your loan, and this typically ranges between 10% and 30%. Effectively PayPal working capital APR ranges from 15% to 30%.

While the best buy will depend on your specific circumstances, the costs are roughly equivalent.


6. Eligibility

To apply for a PayPal loan you need to have had an active seller account for at least three months with a sales volume of at least £1,000 a month, but if that’s all you have then expect to be charged the full 30% fee and you will only be allowed a small loan. With Bitbond you need to have sufficient disposable income to service your loan, and the loan amount is restricted only by your ability to repay it.


7. Application process

Applying for a PayPal Working Capital or Bitbond loan is a simple process which can be completed in minutes. Once approved the PayPal Working Capital becomes available immediately, however, a Bitbond loan won’t be available until your request has been accepted by a lender, which could take up to 14 days. Bitbond, however, has recently launched a new product: the instant funding. If your rating is high enough, the funds will be transferred to your bank account immediately.


Conclusion – PayPal Working Capital Review

After reading this PayPal Working Capital review, you can clearly see that both PayPal and Bitbond loans have much to offer to eCommerce entrepreneurs, so it is up to you to decide which option suits you better. Certainly neither model will suit everyone; for some businesses a PayPal working capital loan will be the optimal solution and for others the best choice will be Bitbond. If you’d like to find out more about this topic, check out our  how to get a small business loan, blog-post.

If you have a good relationship with PayPal in that you have a substantial PayPal sales volume and you have not experienced any issues with your account such as, too many charge-backs, you might benefit more from a PayPal working capital loan.

On the other hand, if these don’t apply to you and you would like more control and flexibility, then Bitbond would be the best choice.

If you are undecided, why not go through the application process for both and see which one works better for you? Unlike applying for credit cards, applying for these kinds of online loans won’t have any impact on your credit history.

Please note that this PayPal Working Capital review is provided for your information only; it should not be taken as financial advice.

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