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?

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    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. – TripeHound Jan 10 '18 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. – mhoran_psprep Jan 10 '18 at 11:57
  • Paypal list the total to be paid back as the loan + fee. That seems straightforward. – 4thSpace Jan 10 '18 at 14:19
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    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. – chepner Jan 11 '18 at 18:27

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?

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    in the question you state a loan of $2000 but in the answer you say it is $1000. – mhoran_psprep Jan 11 '18 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? – chepner Jan 11 '18 at 18:10
  • @chepner: irrelevant since that can be the case on any loan. Mhoran - ok, use loan amount of your choice. – 4thSpace Jan 11 '18 at 20:38
  • It's quite relevant, since PayPal is holding any money you earn in the first place. – chepner Jan 11 '18 at 20:43

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