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

By David Brackin April 11, 2017 - 4:35 pm

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.

  • 4 years ago

    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

  • 4 years ago

    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.

  • 4 years ago

    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.
    – 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’.

  • Annabel
    4 years ago

    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

  • 4 years ago

    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.

    • Michael
      4 years ago


      “Taking a 97k loan with 2,200 of interest on top paid back over 90 days gives an APR interest rate of about 20%” – interesting calculation!

      Please google “how to calculate APR”, click the first link, scroll down to “Calculate APR on Payday Loans” and calculate again.


    • 4 years ago

      Hi Michael —
      I took a look at that search result and — assuming we’re looking at the same page — I’m afraid I don’t agree with their methodology, nor the application of that calculation to this loan structure.

      I’m sure you’ve already noticed but the calculation proposed there is an arithmetic average when the APR is a geometric one — this assumption is a bit like saying the Earth is flat — it’s true for small bit of it, but overall gets you to the wrong answer.
      So for a 7 day payday loan it’s not bad, but at 90 days it’s starting to go wrong. However the larger issue is that the example they are calculating is for a loan paid off in full on termination day and the PPWC loans are paid off daily during their term. It’s a bit like comparing the area of a triangle and the area of a rectangle. Sure — they are just as long and just as high but one is twice as big as the other.

      While you can do the calculation arithmetically, I think numerical methods are more practical for most of these calculations. The gold standard is the XIRR function in Excel for a series of expressed dated daily cashflows, which is how I did it. I assumed even payments on the 90 days over which the loan was paid off.

      I hope that helps explain my calculation of 20% APR for the loan Joe described.

    • Michael
      4 years ago


      You are wrong, please use the online calculator

      Based on the figures given $97k loan, $2200 commission, 90 days term you get 9.2% APR and NOT 20%!

      Iwoca costs usually 20%-30% APR, see their online calculator and final costs.

      Paypal is much cheaper.

      Chris Dawson: this article should not be published.

    • 4 years ago

      You are wrong here Michael. as David already explained the Payday calculation you are referring to is for the loan to be paid off in a single payment at the end of the term. In this case 90 days.

      That is not how PayPal Working Capital works. A rough and ready calculation to get you into the ball park, would be to use the payday calculation with the loan amount divided by 2.

      Much better to just use the correct excel function though.

    • 4 years ago

      Michael – thanks for your contribution and that link to the payday loans tool.

      I’ve had a look at the tool and it is quite simplistic — as steven has said — this loan may be too much for a blunt instrument to understand, but straight line assumptions and daily repayments seldom go hand in hand. This is obviously why APRs are used as they allow fair comparisons to be made between very different products.

      Please bear in mind that simply because this money is not cheap does not mean it does not represent excellent value: the convenience, speed and security of the loan are all factors to take into consideration against the cost. Many commentors here have expressed their great experiences with using the product.

      Thank-you also for your kind suggestion that my maths is wrong. These loan calculations are complex and mistakes can be made and it’s a good reminder to us all that we can any of us be wrong from time to time. It just happens to be your turn today. Better luck tomorrow.

  • 4 years ago

    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.

  • 4 years ago

    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.

  • 4 years ago

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

    No change there then…

  • 4 years ago

    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.

  • 4 years ago

    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’.

    • 4 years ago

      Joe – thank-you for your kind offer. The team at Paypal are looking into the technical error. I’d like to be in no better or worse position than any other person trying to use their service.

      With all the permutations of loan repayment, fees and so on, I appreciate the mathematics of loan calculations can be a little complicated. I am afraid I am cursed with my facility for numbers but I find it helpful to look at the overall picture as well as slogging through the detailed calculation.

      In your example even this simple approach is quite revealing. Your average loan balance must be around 50k. You start at 97k and pay it off daily to 0 over the quarter and then start again (at no point do you have 400k). The total cost is about 9k, so simply dividing one by the other gives an estimate of the loan interest rate at 18%. The convexity of the compounding function means that this is a slight underestimate of the true rate. And of course this varies highly by the exact loan and the daily business performance. Should we ever get to the stage when we can arrange a loan, I will calculate the true APR and publish it here.

      While it might appear a no-brainer, it’s not cheap, and I do think it is worth calculating these values properly so that different funding sources can be compared and a fair measure applied to a stock purchase to see whether it will be valuable to borrow to fund the purchase.

  • northumbrian
    4 years ago

    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

  • 4 years ago

    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.

Featured in this article from the Tamebay Guide – companies that can help you grow and manage your business.

Stuff U Sell

Stuff U Sell is the UK’s leading eBay Trading Assistant, offering an end-to-end selling service for businesses and individuals.


PayPal Working Capital is a merchant cash advance linked directly to your PayPal account.


Flexible facility of up to £200000 within hours.

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