Should You, or Should You Not? Review of PayPal Working Capital

Should You, or Should You Not? Review of PayPal Working Capital

As a business owner, part of the obligation you owe to your company (and your customers) is to be constantly on the lookout for tools that can improve your operation, maximizing the resources at your disposal and opening up opportunities for growth in the process. Although the customer-facing elements of your business may be the prime candidates for such scrutiny, don’t overlook the effect that efficient back-office operations can have on your company. To that end, you might want to reconsider your loan options.

In particular, PayPal Working Capital offers an alternative to other small business credit and loan options. Introduced to all PayPal users in 2014, this service has been developing traction among business owners in recent years — but is it a route worth exploring for your company’s financing needs? To answer this, we’ll need to dive into how PayPal Working Capital functions, as well as a breakdown of who really benefits from its services. So let’s get started!

A Closer Look at PayPal Working Capital

If you have an active PayPal account, then PayPal Working Capital offers an impressive package that could very well fit into your existing business model. Part of its appeal stems from the ease with which new accounts can be created. Because your account is simply an extension of the sales of your main PayPal account, no credit check is necessary to get started, and any activity in your PayPal Working Capital account has no bearing on your credit score. Don’t worry about dealing with a lengthy application period either — funds are available in just minutes. If your financing needs change at a moment’s notice, then PayPal Working Capital might be exactly what you need.

Another major asset of PayPal Working Capital is the fact that you don’t have to pay any additional fees for the service. When you sign up, you agree to a specific fixed rate, which remains the only total you have to pay going forward. The process is a straightforward alternative in an industry that has become increasingly convoluted with hidden administrative charges and interest payments.

With PayPal Working Capital, just select a portion of your PayPal sales to dedicate to your account, and it’s automatically deducted from the total as your payment. There’s no need to wonder how your payment structure is going to change over time, or what your costs will be at the end of a given period. It’s all taken care of.

In that respect, PayPal Working Capital offers a stark contrast to traditional credit cards and bank loans. In addition to its speedy application (and funding) time and lack of a credit check, the service’s biggest selling point is its fee structure. Rather than a long-term commitment, the amount you pay back into your PayPal Working Capital account hinges on the activity of your PayPal sales. Even so, this setup isn’t necessarily the perfect choice for all businesses. After all, the repayment period isn’t indefinite.

While your payments depend on your own figures, the minimum repayment requirement for PayPal Working Capital is every 90 days. Depending on what percentage of your sales you’ve chosen to devote to repayment, you will wind up required to pay between 5 percent and 10 percent of your total loan amount — plus the fixed fee for the service — within 90 days. A higher percentage typically denotes a shorter repayment period. For example, loans at a 10 percent minimum are expected to be repaid within a year.

Also note that loans are only granted independently. This means businesses such as yours will have to wait until a single loan is paid off before opening up a second one. Depending on your needs, this can present a challenge.

Who Should Use PayPal Working Capital

Here are the basic requirements for opening up a PayPal Working Capital account:

  • Having a PayPal Business or PayPal Premier account for at least three months
  • Annual PayPal sales processing of between $15,000 (or $20,000) and $20 million, depending on your account type
  • The ability to complete payment on a previous PayPal Working Capital loan if applicable

For businesses already relying largely on PayPal for revenue generation, PayPal Working Capital may be a natural extension of that activity, presenting the opportunity for easy funding.

The smooth process and repayment approach is designed specifically with key PayPal users in mind, especially if business owners want to avoid the invasiveness of an in-depth credit check. Companies looking for a way to strengthen their cash flow or secure immediate funds for a new project could do far worse than PayPal Working Capital. Business owners in any industry might find plenty to love about the service, with its reasonable terms and fast-paced turnaround. That being said, it does have some drawbacks and may not be equally attractive for all business owners.

When PayPal Working Capital Might Not Be Right for You

Because PayPal Working Capital is built for high-end PayPal merchants, those who don’t operate primarily on the site or don’t deal in significant enough figures might be better served by looking elsewhere for their lending needs. Sure, PayPal Working Capital offers a relatively affordable way for businesses to secure funding quickly, but it also has its limits.

For example, account holders can only borrow up to 18 percent of their sales total (a maximum of $97,000). This amount may simply not be enough to meet the needs of some business owners. Combined with the fact that you can only have a single active PayPal Working Capital loan at one time, it’s clear how some businesses may not be able to sustain themselves using this service as a primary financing resource.

In addition, PayPal Working Capital relies on annual sales and regular repayment of ongoing PayPal revenue. While this may prove a worthwhile method for many businesses, those that rely on a more seasonal sales pattern may run into issues (especially with PayPal Working Capital’s 90-day repayment period).

Remember that account holders are always required to pay off a specific percentage of the total loan (and the fixed rate for the service itself) during this time. Catch-up payments may work for a while, but ultimately your business could encounter challenges in working with PayPal — including restrictions on your withdrawal amount. As you can imagine, this could be a particular problem if the site plays an integral role in your business.

Still unsure if PayPal Working Capital is for you? Let us know on Twitter @Revenued_com.

Robert Yaniz Jr. has been a professional writer since 2004, including print and online publications. Much of his experience centers on the business world, including work for a major regional business newspaper and a global law firm.
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