Paypal Working Capital – lights are on but no one is home

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David Brackin of Stuff U Sell is a regular contributor to Tamebay. Here he tells of his recent experience with small business finance companies:

I tried iwoca last year and wrote up the experience on Tamebay. I was amazed at how fast and easy the process was compared with our High Street Bank. Since then, the industry for providing working capital to ecommerce sellers has burgeoned. The basic idea is that by giving them access to your online selling history, they can make a much better decision than your bank manager.

I was recently called by PayPal to ask if I was interested in their service, ‘PayPal Working Capital’, and faced with a stock purchasing opportunity, I thought I’d give them a whirl today.

The site is well-designed and the idea is that you are charged a single fee added to your loan and you choose what percentage of your future paypal receipts to use to pay it back. The smaller the percentage, the longer it takes and the higher the fee. It’s hard to calculate it as an APR as the term depends on your future sales, but it’s not cheap money – none of these working capital loans is. However, the nice feature is that – since it’s a percentage of sales – you only pay when you can afford it. If the stock sells slower than you thought, they aren’t making things worse.

Nice idea, then, but how is it in practice? Sadly I can’t tell you. When I tried the application, I immediately was hit with technical errors.

There’s an 0800 number on the site to call if you’re a new customer wanting help with the site. Unfortunately that isn’t answered either. After over 20 mins on hold, I decided to call it a day.

Paypal Working Capital is a nice idea in principle, but like all good ideas it will succeed on how well it is executed. The loans are not cheap, and the least you can expect is the provider to be attentive. By contrast I called iwoca last night at 6.30pm and the phone was picked up straight away by a named contact who knew my account and was happy to chat through the facility. This is still the level of service to beat in this industry.

13/4/17 Updated to add:

Paypal called to confirm that they were having unusually long wait times when we called and that the standard wait on this number is around 2 minutes, and indeed this morning the number was answered in 30 seconds. Furthermore, if you have any enhanced support on your account then they are also able to help with Working Capital enquiries. They also told us that currently the service is limited to £60k but should be increased later on in the year to £100k. The technical problems using the website persist and they are having their team look into the issue.

18 Responses

  1. Just be careful to read the terms. You do have to pay back a large percentage of the loan even if your sales are zero every 90 day period. Also a 30,000 loan on lowest percentage of 10% pay back is a hefty £5310 . I found the loan was repaid in a year. Really too fast.. At least with banks you can have multiple year terms and can calculate APR easily. That fee must work out at a pretty high APR for paypal loan

  2. Hi David
    I’ve used PPWC a couple of times now for stock purchase opportunities and have always had a good experience. But maybe that’s because I’ve never had to contact them. The application just went through smoothly each time.
    I agree they are not cheap, but once I had calculated the cost compared to the potential margin I could make on the stock purchase I was happy with the sums.
    One good thing is that they base their decision purely on your PayPal revenue and history, so there is no lengthy credit check process to go through and you get a decision almost immediately. You can pay back early if you wish, but it doesn’t alter the cost of the loan.

  3. We have had;
    – 8 x $97,000 PayPal Working Capital loans over the last 2 years.
    – Each loan has paid itself back in approximately 90-120 days.
    – The average interest for each loan has been approximately $2,200.
    THIS COMPARES WITH KABBAGE TYPICALLY ASKING $2,700 INTEREST OVER THE SAME PERIOD, AT THE SAME RATE – FOR ONLY $15,000 LOAN!
    – Each Pay Pal Working Capital loan took exactly 10 seconds to process.

    CONCLUSION: the author ought to have spent more time and diligence researching beyond his own singular experience. Additionally, Tamebay does a dis-service to PayPal by not fact checking these ‘sources’.

  4. Indeed PayPal are very clear on what you pay back right at the beginning – so on a 10k loan paid back at 30% the cost is fixed as below

    Fixed Fee £621
    Purchase Price £10,000
    (In other communications this may be referred to as the Cash Advance Amount)
    Applicable Percentage 30%
    (In other communications this may be referred to as the Repayment Percentage)
    Specified Amount
    This is the Fixed Fee plus the Purchase Price.
    (In other communications this may be referred to as Total Repayment Amount) £10,621

    far far cheaper than either Iwoca or other quick lenders – though Amazon loans can also work out cost effective

  5. Hi Joe — thanks for the figures.

    Taking a 97k loan with 2,200 of interest on top paid back over 90 days gives an APR interest rate of about 20%. I appreciate you’re working in dollars, but this is not cheap money in anyone’s currency.

    Mortgages run at around 2%. This is a loan secured on future revenues, not a house, so is not so secure for the lender, but by comparison invoice factors operate at around 3-5%. High Street Banks lend on longer terms without security at around 6-8%. Credit cards operate at around 20%. Payday lenders typically operate on small amounts at APRs over 1000%. Although I’m not sure “not as bad as Wonga” was where Paypal were headed with this product.

    The Paypal calculation is complicated as you cannot know in advance at what rate you’ll repay the loan so comparing its APR with other loan providers is impossible in advance, making it tricky to see how expensive the money really is. Yes – you know the fixed amount up front – but you do not know the term. You’d have to be pretty green at finance to consider one without the other. So you have to make guesses as to your future sales, your repayment rate and work backwards from there.

    To take Annabelle’s example, 10k with interest of 621 paying back at 30%. Well we’d pay that back in 5 days so that would be an interest rate of a little over 1,600%. But that rate may be different for Annabelle if she has different volumes to us.

    While you may disagree with the article and your experience is different, it does faithfully represent the facts as I tried to follow the application process. I’m sure I’ll be back to report on the process should a future opportunity arise and should they be in to take my call.

  6. The fixed fee increases exponentially the lower the payback percentage and the greater the amount borrowed. Borrowing the max amount available and repaying at 10% is exceptionally expensive.

    The two smallish loans I have had both had reasonable fees below 7%. Although they did have quick repayment so the APR was terrible. Off the top of my head, the fee was around 20% if I had chosen to max it out with repayment taking approx 2 years.

    Quick easy money for up to 10% of your PayPal income on a quickish repayment. Anything more than that and I would look elsewhere.

  7. Hello David, Thank you for the comments. Your figures are well understood and certainly appreciated. Nonetheless, had this formed the substance of your article, it would have made for a far more useful analysis and far less spectacular negative bias.
    In my mind, the interest is negligible at these levels in direct proportion to utility. The PayPal facility is a robust, rational performance base business finance support mechanism that blends perfectly in workflows tuned to its best use. This should not be confused with predatory so called business lenders.
    When Kabbage quotes 20% ($2,700 for a $15,000 loan), I’m thrilled to pay PayPal only 2% on 100k. Try it, you’ll like it.

  8. 2% on 100k suggests the US gets much better rates than we do.

    No change there then…

  9. Thanks again Joe for adding your experiences.

    Trying it to see if I would like it was exactly what I was trying to do. And the inability to do that was exactly the substance of this article. I would have loved to write about the interest rates on offer but I couldn’t even get through the door.

    I’m not at all negative about the idea: I think this is a fascinating industry and indeed I was beating on the door trying to use the service. Once I’ve been able to try it, I will certainly be back to report on it.

  10. David,
    Let me know if you have any further difficulty. I will be pleased to make some introductions for you. You should have no difficulty having a conversation with an appropriate executive on the basis that you are a contributing writer for an ecommerce blog that might possibly promote the benefits of the PayPal facility.

    From our perspective, we view the traunches and not an annual amortization.
    $2,200 for $100,000 (2% approx.) x quarterly = $8,000 interest for a $400,000 loan over the course of a year on the daily 10% of revenue repayment plan. Regardless of background in math, this is also known colloquially as a ‘no brainer’.

  11. cant fault paypal working capital
    came across a great deal yesterday ,choice was to pass it by or get quick money,
    we have plenty of assets though no way of getting our hands on large amounts instantly
    £10.000 downloaded in seconds via mobile phone from paypal
    job done

  12. David,
    Thanks again for the explanation. Indeed, I completely understand your mathematecial approach. This is not a loan that operates in such capacity, and may not be suitable for your intended purpose. It would be like dressing a ditch digger in a tuxedo. This is a — short term — opportunity cost — ‘working capital’ facility, and so called as such, not a long term investmet funding source. It would certainly not be suitable for long views or long shelf life deep inventory. This is a loan with established performance based metrics able to identify and monetize spontaneous opportunity. It is not a fundamental business finance structure. That would get any potential lender into trouble. This is Paypal saying how can we help merchants generate short term cash so they can get to building infrastructure for themselves, not funding their business for them. What you’re describing is a stage 2, typical long term traditional banking line of credit one would normally like to see at 6%. This is a stage 1 PayPal small business merchant focused initiative, much more favorable, efficient and frictionless than its apparent competitors.

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