If you have been using PayPal for some time, you have probably been made aware of, or even have been offered, a business loan from PayPal. It’s an efficient way to bypass the bank, especially for the unbankable, and if your business uses PayPal, it’s a good investment for a fast injection of capital.
They offer a set payback schedule, taken from your PayPal balances, with a “hold back,” a set percentage, agreed upon from the beginning, of each sale.
Honestly, their rates are fantastic. If you are processing through PayPal or have an offer from them, and you need a term loan, by all means, it makes sense to use them. However, I find that many clients don’t need money now. What they want is the security of having access to money when they need it. There is no need to pay interest on debt that you’re not using. And when you start paying back the debt, you don’t have access to more working capital needed to finance that purchase.
Term Loans are NOT working capital
You can read about what a Line of Credit is on my other post. Almost every client that I have seen that qualifies for a PayPal working capital loan will also qualify for a true Line of Credit. Grow your business as you need to, intelligently, not by just throwing cash at it. Tons of debt won’t get your business sustainable or profitable.
No Prepayment Benefits
PayPal Working Capital offers little to no incentive to pay it off early, AKA a “prepayment penalty.” A true Line of Credit offers no prepayment penalty, which means when you make money, pay down the debt and wait for the next need.
So you’re qualified, but there’s no need to take out the loan yet? Who knows what will be tomorrow – maybe your credit score will drop, or your business will have a low month? Get qualified now for a line, use it responsibly minimally, and get the line increased for when you need it more.
True – It’s not bank rates. It depends on what your business qualifies for. If your credit is excellent, we have much better options, and we can actually help direct you to the bank!
But, if the ROI is good, who cares? Let’s say you’re going to make 30% on every dollar invested, at what cost to capital is it worth the investment? If 30% translates to $10,000 and you’re paying $5000, maybe. To make $50,000 and you’re paying $25,000? That’s the same ROI, but the cash you end with is much higher.
Get funded with a pure line of credit. You might get funded with less dollars up-front, but over the course of 6 months, you’ll have access to more capital, and you’ll have a real long-term solution. You may even qualify for interest-only bank offers!
