Paypal or Square for Business Loans?

Competition is great unless you are one of the competitors. Paypal must be getting rather irritated as Square, Inc., launches new challenges to Paypal’s hegemony on a growing number of fronts. The latest Square encroachment on Paypal’s turf is business financing…

Some New Options for Small Business Financing

Borrowing money against future sales is one way to fund expansion of a business, or to even out seasonal ups and downs in cash flow. Lenders who make this type of loan like to be intimately familiar with the cash flow history of a borrower – and who’s more familiar with your cash flow than the payment processor through which your cash flows?
Paypal and Square are ideally situated to evaluate loan requests and collect repayments from their most active customers. Let’s see how these two merchant services companies compare in their deals and methods.
Paypal Working Capital requires no credit check; applying for it does not affect your credit score at all. Instead, your Paypal sales history is used to determine the loan amount for which you qualify. You decide how much to borrow up to that maximum. You also decide what percentage of your future Paypal sales will be devoted to repayment; the bigger the percentage, the faster the loan will be paid off.
Paypal and Square for Business Loans
Paypal combines your sales volume, the amount you want to borrow, and the rate at which you wish to repay the loan to determine the loan’s price – a fixed fee that is proposed to you before you commit to borrow. So before you borrow anything you’ll know to the penny how much you will have to repay.
Once you commit to borrowing, the loan proceeds are deposited to your Paypal account very quickly, sometimes the same day. You can then spend that money via your Paypal debit card or withdraw it to a bank account. Then the repayments start.
Each day, Paypal withdraws from your account the percentage of the previous day’s sales receipts that you elected to dedicate to repayment of the loan. “Sales receipts” do not include personal payments from friends or family members, or certain other non-sales deposits made to your account.
If you have a day without any sales, no loan payment is deducted the next day. A long period without any sales, or unusually low sales that raise suspicions you are directing sales receipts away from your Paypal account, may attract attention. If Paypal decides you are evading re-payment, the full loan balance may become due immediately.
All that’s missing from this easy-money scenario is the amount of the fixed fee. That varies with each loan application based on your sales history, amount borrowed, and percentage of sales that you commit to repayment. This Paypal page shows some hypothetical examples of fees for a business doing $100,000 in Paypal annual sales receipts.

Square Capital Small Business Financing

Square Capital is currently in “stealth” test mode; it’s being offered to a limited number of selected Square merchants via email right now. Its proposition is a bit simpler than Paypal’s, and perhaps more transparent.
In one unsolicited offer received by a merchant, Square proposes to lend him $7,300 with a fixed fee of $1,022; a total of $8,322 will have to be paid to Square to retire the loan.
The percentage of future sales devoted to repayment is fixed by Square at 10 per cent. So the merchant will have to receive $83,220 in revenue via Square before the loan and fee and paid off.
It’s tempting to work out annual percentage rates for various scenarios and try to say whether Square or Paypal offers a better deal. But in reality, any assumptions made about future sales volume are speculation, rendering such comparisons rather silly.
Borrow from Square if you’re offered a loan, need one, and don’t like making several decisions based on incomplete information. Borrow from Paypal if you like to mess around with spreadsheets until you’ve convinced yourself that you can predict the future accurately.
Either way, you’re likely to end up paying double-digit interest for this type of loan. Your thoughts on this topic are welcome. Post your comment or question below…

More Posts about Finance:

  • New Square Reader Does Apple And Chips

  • Are You Ready for Equity Crowdfunding?

  • Are You Ready For Chipped Credit Cards?

  • Paypal or Square for Business Loans?

  • Which Online Payment Options Should You Offer?


  1. That is very expensive money and shows a projection of very high non-repayment. A small (micro) business needs this ‘help’ like a hole in the head.
    Base rate here is 0.5%. Credit cards give 30 to 60 days free credit. Bank loans (OK with security, but ever tried arguing ‘it was unsecured’ in court?) even for the daftest of us are 7 to 9%.
    It may be easy cash on a fixed figure payment but it sure isn’t cheap.
    The toughest time for businesses is after the upturn has started. Banks see a profit in calling in loans and causing bankruptcys that’s when the offers of easy cheap cash start flowing in…..

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