PayPal’s Merchant Cash Advance Program Grows, Performance Improves

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The PayPal Working Capital program has advanced more than $1 billion to small businesses since inception. Rooted in merchant cash advance methodology since PayPal withholds a percentage of each transaction until receiving payment in full, they are not actually buying future receivables. Rather, they originate loans through WebBank, the same Utah-chartered industrial bank that OnDeck uses. But OnDeck’s payments are fixed and PayPal’s are tied to sales activity.

PayPal’s loans therefore don’t have a fixed term but they evaluate historical sales activity and use that to project a loan payoff usually within 9 to 12 months. According to their Q4 2015 earnings report, their 2015 results performed just as well if not better than their 2014 results.

$421 million was outstanding at the end of 2015 compared to $103 million at the end of 2014. 77% of the $421 million was on pace to pay off within 30 days of their planned projections. 11.16% was on pace to finish 30-59 days beyond them. PayPal broke it down by dollars in their earnings report.

PayPal Working Capital Chart

But we’ve broken it down into percentages below:

As of December 31, 2015

Total outstanding balance Within Projections 30-59 days greater 60-89 days greater 90-180 days greater
$421 million 77.43% 11.16% 4.99% 5.70%

As of December 31, 2014

Total outstanding balance Within Projections 30-59 days greater 60-89 days greater 90-180 days greater
$103 million 76.70% 9.71% 4.85% 6.80%

PayPal borrowers cannot simply stop accepting PayPal payments in order to avoid loan repayment. They are required to pay at least 10% of their total loan amount (loan + the fixed fee) every 90 days so that they make consistent repayment progress regardless of their sales volume. Notably, their website warns, “If you do not meet the requirements in the above policies and your loan goes into Default status, your entire loan balance could become due and limits could be placed on your PayPal account.” For businesses that depend on PayPal sales, that is certainly a downside worth avoiding.

Last modified: February 27, 2016
Sean Murray


Category: merchant cash advance

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