PayPal provides small businesses with two loan options: traditional term and working capital. You need a PayPal Business account to acquire these loans, but you don't have to receive funding through PayPal. PayPal is a reputable company that provides reliable small business funding options. The overall qualifications are relaxed, and the agreement structure and loan terms are on par with competitors' offerings. It doesn't require a hard credit inquiry to approve you, and the company considers your monthly income closely. If you're initially approved, the company will likely conduct a credit and public records check before completing the approval process (this is only for term loans).
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Businesses that partner with PayPal can access term loans from $5,000 to $500,000 and working capital loans from $1,000 to $125,000, depending on your qualifications and monthly revenue numbers. The working capital loan is paid back as a percentage of your monthly PayPal sales. In this sense, the working capital loan resembles a merchant cash advance – you get an advance as a percentage of your monthly income, and then a percentage of your monthly PayPal sales are removed until the loan is paid back.
It's important to keep in mind that PayPal can't lend to certain industries. These are some notable restricted industries, including attorneys, financial services, environmental or wildlife organizations, independent writers or performers, and religious organizations. You can view the full list here. Overall, PayPal provides a compelling loan option for small business owners who don't want to work with a bank to get a loan.
Rates and Terms
For term loans, business can apply for $5,000 to $500,000 on terms ranging from 13 to 52 weeks. In the grand scheme of loan companies we reviewed, this is a short-term loan option. PayPal advertises on its site that this type of loan provides fast cash with lower qualifications and requirements than big banks. PayPal syncs directly with your bank account and automatically deducts weekly payments until the loan term is complete. There are no additional fees with this loan, except for a $20 returned-item fee that is only assessed if a payment is returned. You can pay back the loan at any time, but you'll have to pay the full principal and interest at the time of the payment.
Individual interest rates on these loans vary depending on a business's financial situation. PayPal doesn't advertise its rates publicly, but you can get a quick idea of what your business qualifies for by filling out and submitting an application. The application is not a commitment, and is a good way to inquire what your overall loan situation would be. While the rates are not available publicly, PayPal says its rates are fixed and will not fluctuate throughout the loan term.
For the working capital loan, the hold-back rate, which is the percentage of your daily credit and debit card sales the lender keeps as a repayment, ranges from 10 to 30 percent, which is average in the industry. So, if you borrow $10,000 at a factor rate of 1.25 and your hold-back rate is 10 percent, you would pay 10 percent of your daily earnings to PayPal Working Capital, which goes toward your loan repayment. If you made $1,000 in sales one day and paid back 10 percent, that would be $100; however, if you only made $300 in sales the next day, your payment to the lender would be $30. Individual rates will depend on your business's financial situation, but companies have to pay a minimum of 5 or 10 percent every 90 days to keep the loan in good standing.
The advance amount you're eligible to receive is determined by your sales volume, varying based on your sales from the past 12 months. The maximum advance is $125,000. The payback schedule will vary on a daily basis, as it's tied to your PayPal sales.
Besides favorable pricing and terms, there are other features that make PayPal's loan service ideal for small business owners. The qualifications are fairly lenient compared to its competitors, and small businesses can enjoy a quick loan process and fast turnaround.
Interested business owners can complete an application online or over the phone. The application asks for basic business information, like name, address and years in business. PayPal may request additional financial information and documentation once you submit the application. However, you can get preapproved within minutes of submitting your application. Once you've been approved, you can customize your loan term and amount and then get your funds.
PayPal's term loans vary from 13 to 52 weeks, meaning you'll have to pay back your loan within a year of borrowing the money. The working capital loan takes on a different structure. Because the loan is paid back as a fixed percentage of your daily PayPal sales, there's no specified term on the loan. Instead, funds are deducted from your daily sales until the loan is paid off.
PayPal has various qualifications depending on what loan you're applying for. For term loans, there are several minimum requirements. You need to have been in business for at least nine months, generate at least $42,000 in revenue each year and not have any active bankruptcies. Your business also needs to be located in the U.S. and have an active business record with your secretary of state.
If you're applying for a working capital loan, you need to have had an active PayPal business account for three months or more. You also need to process between $20,000 and $20 million annually if you have a Premier PayPal account or between $15,000 and $20 million annually if you have a Business PayPal account. You can't have any outstanding working capital loans with PayPal.
Notice that there are no hard credit requirements in either instance. PayPal emphasizes monthly income in its review process. The company does mention on its website that it may conduct a credit and personal record inquiry, but this step in the process won't occur until after the preapproval process.
PayPal loans require a personal guarantee, which is a legally binding agreement that you will pay back the loan. Beyond the personal guarantee, businesses may not be required to put up individual assets as collateral. This is ideal for small business owners looking to protect their personal and business assets.
Time Until Deposit
Depending on how long the loan process takes, you can access your funds within minutes of signing the agreement. This is for both term loans and working capital loans.
PayPal may request additional financial and business documentation after you've been preapproved. This could include various documents, like bank statements, tax returns or other financial statements. It's a good idea to have various information ready to keep the process quick and efficient.
When to Use This Type of Loan
These loans can be used for nearly any business-related purchase, including covering expenses or payroll, investing in marketing, buying new equipment, or managing cash flow. You need a PayPal Business account to take out a loan. Unlike many of the alternative lenders we looked at, it doesn't require small businesses to have a physical, brick-and-mortar location in order to get a loan; it only requires that you be based in the United States to get a loan. This provides a good avenue for e-commerce and other internet-based companies.
Both of PayPal's loans should be considered short-term loans. The term for the traditional small business loan is only a year, which means you'll have to pay everything off quickly. The working capital loan, while there's no defined term, is a fast-cash-style loan that should be treated as such. In both instances, PayPal's loan offering is ideal for business owners looking to get quick access to cash.
Reputation and Customer Service
PayPal is an established company and a reputable financial services company for small businesses. It is an accredited business with the Better Business Bureau, earning an A- and 3.2 out of five stars. There were quite a few complaints on the company's page – more than 7,000. This is the highest number of complaints of any company we reviewed. However, keep in mind that PayPal is a big company that provides several different services, so these reviews may not reflect the company's alternative loan service.
The only limitation is that only businesses with PayPal Business accounts can qualify for funding. This means that, unless you've established a membership with PayPal three months before requesting a loan, you won't be able to get funding.
Also, the only way to pay back the working capital loan from PayPal is through its own platform sales. Other lenders that offer merchant cash advances usually partner with a wide variety of credit card providers so all credit card sales contribute to your loan balance. While this may be a drawback for some, if your business is deeply rooted in PayPal volume, then its small business loan service is a good option.
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