PROS / Repayment costs can be as low as 6 percent.
CONS / This lender doesn't offer a prepayment rebate.
VERDICT / PayPal Working Capital is one of the best merchant cash advance services for new businesses. It has flexible and forgiving eligibility requirements.
If you're already using PayPal to process payments, your small business could easily qualify for a business cash advance. PayPal Working Capital extends regulated loans from WebBank, and the repayment structure functions as a merchant cash advance, with daily repayments tied to your credit and debit card sales. Loans range from $1,000 to $85,000, and are available to small businesses that meet certain minimum requirements. Like most working capital loans for small businesses, you can use the financing for nearly any business purpose, except to purchase real estate. PayPal Working Capital's repayment costs are lower than most of its competitors, it doesn't perform personal credit checks, and its eligibility requirements are minimal, which is why it earns the Top Ten Reviews Gold Award.
PayPal Working Capital offers one of the lowest repayment rates of all the merchant cash advance services we evaluated. The cost averages around 6 percent of the financing you receive, which is uncommonly low for cash advances. The service doesn't charge origination or application fees, so you get more of the money you intend to borrow. PayPal Working Capital is unsecured financing, so you don't have to put up your house, car or other item as collateral should you default. The company doesn't even require a personal guarantee.
The repayment minimums you need to meet in order to be considered current on your advance requires you pay a minimum of 10 percent of the total borrowed amount every 90 days for the first 18 months of your loan. PayPal Working Capital alerts you if your repayment appears slower than anticipated and you can make additional payments if needed to meet this minimum. However, you don't receive any discount or rebate if you repay your loan to this merchant cash advance service earlier than expected.
The representative we spoke with was forthcoming with information about PayPal Working Capital but did not provide a quote over the phone with repayment estimates and hold-back rates. The representative explained that merchant loans are system-generated and are determined by your business's cash flow. Other factors, such as returns and chargebacks, can be determining factors as well.
PayPal lists eligibility requirements on its website. One of the main requirements is that you must be in business and process your credit and debit cards through PayPal for at least three months with a PayPal business or premier account. This time requirement is one of the shortest in our review.
Another requirement is that you must process a minimum of $20,000 per year in card sales, which is a lower processing minimum than other services we evaluated. These eligibility requirements make PayPal Working Capital one of the most accessible alternative business funding choices for startups and very small businesses.
When you're eligible to receive a merchant cash advance loan from PayPal Working Capital, the lender sends you an invitation by email. To apply, you click on the link in the invitation and provide some information about your business. It estimates that it takes five minutes to apply, and you can receive your advance in less than a minute after it approves your application. The advance amount you're eligible to receive is determined by your sales volume and is typically between 4 and 15 percent of your sales from the past 12 months, with a maximum advance of $85,000.
Because you have to be a PayPal merchant to be eligible for this merchant cash advance loan, the lender already has access to your account history and can use it to assess your cash flow and the health of your business. It's one of two lenders in our review that doesn't require you to submit to a personal credit check.
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 compared with its competitors. 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.
Your total repayment cost is usually lower if you set your repayment percentage higher. The length of the repayment terms varies, but there is no penalty if you exceed the term length. If you fail to meet minimum repayments though, the loan may default, rendering the full balance due.
PayPal Working Capital is a great financing option for startups and very small businesses that already accept payments via PayPal. Although it is technically a bank loan, it functions as a merchant cash advance with daily repayments withheld as a percentage of your credit and debit card sales. There are no additional fees though there is a minimum repayment you must meet every 90 days in order to be considered current on your financing, and there's no benefit in the form of a discount or rebate if you pay your loan back early.