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PayPal Extends "No Interest" Small Business Loan Program

By Clare Curley,

PayPal has indefinitely extended a program launched last fall called Working Capital, which offers loans to small businesses that frequently process payments through the website. Since the launch, Working Capital has benefited thousands of small businesses. Here's how it works:

  • Merchants apply online and select from a range of loans determined by their PayPal cash flow history. Typically, the maximum loan available is about 8 percent of the sales a business processed through PayPal in the last year.
  • If an applicant's request is accepted, he or she pays a single fixed fee.
  • A percentage of the merchant's sales will be deducted daily from his or her PayPal account. The higher the percentage, the lower the fee.
  • Merchants must continue processing payments through PayPal until the loan and fee are paid off.

When San Jose, Calif.-based CF Sales owner Steve Contratto applied for a no-interest $20,000 loan through PayPal, the money was in his PayPal account within minutes. (Note: He pays a PayPal fee).
"It was really beneficial," says Contratto, whose company sells phone and computer accessories-and processes most of those sales through PayPal. The loan allowed him to bulk up on inventory right before the holidays, he says.
Contratto borrowed the maximum amount available to him and paid an $800 fee-a better deal than he anticipated getting from a bank. Having repaid the loan, he says he's taken out a second one of the same amount.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.