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PayPal is making major strides into the increasingly competitive small-business loan market. The online and mobile payment service owned by eBay announced the start of its PayPal Working Capital loan program, which will initially be open only to current merchant customers of the company.
According to details about the program, PayPal will not actually lend money to customers. The cash will be given by its banking partner WebBank. According to PayPal, the borrowers will not be charged late fees or even fixed monthly payments. Instead, the merchant customers will pay a preset loan fee in addition to the principal loan amount, which will be deducted from the sales revenue which is achieved through payments processed by PayPal.
The cost of the fee associated with the loan will primarily depend on the principal amount, which on an average, accounts for up to 8 per cent of the overall annual sales processed by PayPal in the preceding year, in addition to the percentage of sales receipts for loan payments, and the PayPal track record of the merchant.
Loan to Have Reduced Effect on Credit Ratings
The merchant can have the overall fee lowered by allotting a larger percentage of the sales to the repayment of the loan. Further, the entire process will not require a credit check. Consequently, the credit rating of the merchant is not likely to be substantially impacted by the loan.
According to PayPal the approval for a loan application can be completed in as less as 5 minutes. However, PayPal declined to comment on the number of merchants who will be eligible for the initial phase of the program, which will run through the end of 2019.
PayPal will continue collecting the usual transaction fees from participating merchants, who must continue the use of the service till the loan is completely repaid. PayPal will calculate the payment of the loan at the end of each day of business, and will withdraw the requisite funds on the next day. Paypal will disable its Autosweep feature for the merchants, who are in the process of paying back the loan.