PayPal Working Capital UK: Is This a Loan That’s Right for Your Business?
New businesses and start-ups often need cash in a hurry. The same can actually be true of any business that is still in its early growth stages. Getting a traditional business loan from a High Street bank is increasingly difficult however, leaving businesses to look for a loan alternative that will a) provide them with the cash they need fast b) not charge too much in interest fees and c) be offered by a reputable provider, not a fly by night potential scammer.
At first glance, it may seem like PayPal Working Capital UK offers all of this. But does it really, and is taking a PayPal Working Capital advance a good idea, from both a financial and business growth standpoint? That’s what we are going to take a closer look at here.
What is PayPal Working Capital UK Anyway?
You may be able to acquire funding for your business if you have a PayPal business account and use it to collect card payments online or in person. PayPal Working Capital offers merchant cash advances, which means you pay back the loan as a proportion of your PayPal sales.
There do seem to be a lot of advantages to this loan scheme, including all the following:
- The loan isn’t based on credit ratings- yours or your firm’s – instead it’s based solely on your PayPal sales performance. Your credit score, or that of your business, won’t be affected – positively or negatively – if you take a PayPal Working Capital Loan.
- The process is fast. Once approved, most people see the funds in their PayPal account in minutes, which is a lot faster than pretty much any other loan offering, and certainly much quicker than you could expect from a bank.
- You can borrow up to 35% of your annual PayPal sales. The actual amount is determined on your PayPal account’s history. You can borrow up to £150,000 using PayPal Working Capital, but only if you have the PayPal sales to back up that large of an amount.
- You pay back the loan automatically will a portion of your profits. Furthermore, you can set it yourself, starting with a percentage as low as 10%. The repayment percentage options you have will also be determined by the amount you want to borrow. Because you’ll repay the loan faster if you choose a higher percentage, the total cost of the loan will be lower as a result.
Application that is simple and quick. It takes about five minutes, according to PayPal.
- The loan will cost you a single, all-inclusive price. There are no hidden charges or interest rates. The loan has a single set fee, which is determined by the amount you wish to borrow, your annual PayPal sales and account history, and the repayment percentage you choose.
- Once a loan is paid off successfully, most people find they can get another one almost immediately, leading some to use PayPal Working Capital UK as a revolving line of credit.
Do I Automatically Qualify for a PayPal Working Capital UK loan?
No. To qualify for a loan you’ll need more than a PayPal Business account, you will have to meet all the following criteria:
- Have a PayPal Business or Premier account for at least three months.
- Be registered in the United Kingdom.
- Make at least £12,000 in PayPal sales annually if you have a Premier account, or £9,000 if you have a Business account. If you have had the account for less than a year, you may still qualify, based on your YTD sales.
What are the Disadvantages of a PayPal Working Capital Loan?
Even though for some this all probably sounds great so far, there are downsides to taking a loan like this. The biggest is that you will be losing a percentage of your PayPal sales for some time. So before you commit, think it through. Do you REALLY need the cash? You’ll need to balance the need for funding now with that loss of income for what could be several months or longer, factoring in the interest fee as well.
Can you get around this in a crunch by not taking sales via PayPal? You could, as there is a fairly low minimum payment to be made every month. However, if you make use of the PayPal service often enough to qualify for a loan, would your customers accept the change? And while PayPal does not report the loan itself to a credit bureau, they will send it to collections if you default, which will have a significant negative impact.
This also brings up another issue. A business loan from a more traditional institution, like your bank, will, if paid of in a timely manner, give you and your business a nice little credit score boost, something that you will find is crucial for business growth. A PayPal Working Capital UK loan will not.
Should We Take a PayPal Working Capital UK Loan?
PayPal Working Capital is not the cheapest option available. Although you won’t pay interest monthly a lump sum will be added up front. PayPal could charge you anything between £0.01 and £0.58 in fees for every £1 you borrow, according to its website. Which could be pricey, and have you paying the loan back a lot longer than you expected unless you do your homework first.
As accountants, this is where we also point out an accounting wrinkle you’ll need to keep in mind. With no monthly payment due, and repayments taken as a portion of your sales, you’ll have plenty of revising to do in terms of sales projections. You will also need to bar in mind that you’ll be taxed on the whole amounts received from customers, not the money PayPal passes on after it takes its share.
So, for which businesses is a PayPal Working Capital UK loan something worth considering? It may be right for you if:
- A lot of your sales are made through PayPal
- You need a cash injection via a business loan very quickly
- For general operating expenses, you’ll need a small amount of working capital (not to cover a major acquisition or business expense)
- Other, less expensive solutions are not available to you.
- You have an accountant who can help you make sure that loan repayments don’t negatively affect your bottom line or your tax bill. Need one of those? Contact us here to find out how Pearl lemon Accountants can help you (and maybe get some small business loan advice too.)