PayPal Now Offers Small Business Loans
PayPal is branching into new territory with the creation of PayPal Working Capital. With this program, select business account holders have access to a loan through PayPal, and the terms are rather attractive.
A business can borrow 8% of their annual PayPal revenues, up to $20,000. Instead of charging an interest rate, PayPal charges one fixed fee. PayPal will then automatically deduct a percentage of the daily revenues from the business until the loan amount (including the fee) is paid off. The business actually gets to chose the percentage of the daily sales withheld by PayPal: either 10%, 12%, 15%, 20% or 30%.
So, if the business brought in $100 of revenue through PayPal on a particular day and selected a 15% repayment fee, $15 would be deducted from the account that day. If there were no revenues on a certain day, PayPal would not withhold any funds that day.
The amount of time it takes to pay off the loan will depend on the percentage selected, the value of the fee and the amount of money the company earns each day. For instance, let’s assume that the business earns a consistent $100 a day and has an $8,000 loan. PayPal’s one-time fee on this loan is $594. If $15 is put into the repayment every day, the loan will be paid off in 573 days. Assuming those are business days with no sales on the weekend, the loan would take a little over two years to be paid back.
PayPal’s lending terms are more affordable than traditional banks, and they allow businesses to obtain their loan money instantly. PayPal will only be offering loans to 90,000 of its strongest merchants, a fairly small percentage of those using the site for business transactions.
This is the first time PayPal has reached into the lending sector. If the first group of loans goes well, PayPal may expand the program in the future. Under the right conditions, this could be a great opportunity for avid PayPal users.