# Does PayPal working capital offer a good value?

I'd like to know how to determine if PayPal working capital is a good value. Their calculator can be found here: https://www.paypal.com/us/workingcapital/.

The way it works is the larger the gap between annual sales and the amount to borrow, the lower the fee.

Here are some examples based on annual sales of \$25,000/yr. The first two percentages are "Repayment percentage" and "Percentage you keep":

\$2000 loan:

30% / 70% | \$71 fee (3.55% fee)

\$5,000 loan:

30% / 70% | \$476 fee (9.52% fee)

The first configuration obviously has a lower fee but it is a good deal?

• If unfamiliar with this scheme (as I was) it should probably be noted that the term "Repayment percentage" (e.g. 30%) refers to the proportion of future PayPal sales that go to repay the loan + fee, and not (as I originally thought) something close to the (effective) interest rate being charged. Jan 10, 2018 at 8:00
• to determine if it is a good deal you need to figure out how long it will payback based on sales, your historic sales, and what that APR turnouts to be. Jan 10, 2018 at 11:57
• Paypal list the total to be paid back as the loan + fee. That seems straightforward. Jan 10, 2018 at 14:19
• Factor in how much money you keep in your PayPal account, which they have ready access to should you default on the loan. I would be far more interested in understanding the terms of the loan, rather than simply comparing fees. There's a reason they can offer a low initial fee. Jan 11, 2018 at 18:27

## 1 Answer

Since there is only a flat fee, I believe the way to figure out if this is a good deal is to calculate how quickly the loan is repaid and annualize the fee.

On sales of \$25k, that's ~\$2083/mo. I'll use \$2000/mo since the \$83 isn't a factor. At a 30% repayment, the amortization looks like this:

``````Month 1: \$600
Month 2: \$400
``````

The loan is paid off in only two months. Now annualize the fee:

6 x 3.55 = 21.3

While a 3.55% fee looks great on the surface, once you run the calculations, this isn't any different than using a credit card.

Any one see a flaw in the logic?

• in the question you state a loan of \$2000 but in the answer you say it is \$1000. Jan 11, 2018 at 16:31
• There are minimum payments that must be made manually if your sales don't cover the expected repayment. What happens if you fail to make those payments? Jan 11, 2018 at 18:10
• @chepner: irrelevant since that can be the case on any loan. Mhoran - ok, use loan amount of your choice. Jan 11, 2018 at 20:38
• It's quite relevant, since PayPal is holding any money you earn in the first place. Jan 11, 2018 at 20:43