Square Capital vs. PayPal Working Capital vs. Stripe Capital

In the past few years, several credit card processing companies have gotten into the world of financing. Square, PayPal, and Stripe now all have their own working capital loan programs. They promise fast funds, affordable rates, and clear terms. But are they all they’re cracked up to be?

In this article, we’ll explain how Square Capital, Stripe Capital, and PayPal Working Capital work. We’ll show you what they have in common and what sets them apart. We’ll also give you a few warnings.

Let’s find out which—if any—of these new working capital loan companies is right for your business.

The application process may not be as effortless as you'd think, none of these three companies let you simply open an account and apply for a loan. They require you to have an established account and use their services to process credit cards for several months (at minimum). Then, if they like how your sales look, they might offer you a loan.

So if you’re not already using one of these companies, don’t expect to get a loan anytime soon. (We recommend checking out our rankings of fast and easy business loans instead.)

Likewise, if you’re trying to find out which of the three is the best to start using that payment processor, then buckle up for a long-term commitment.

With that out of the way, let’s go ahead and see how these lenders compare.

Square, PayPal, and Stripe have a lot in common. They all approve you based on your credit card processing history. None of them check your credit, and they won’t affect your credit score. (To be clear, they won’t hurt your credit, but they also won’t build your credit profile either.)

And while all three companies like to call their financing “loans” and “working capital,” they’re really merchant cash advances (MCAS).

If you don’t know much about merchant cash advances, we highly recommend you read our guide to merchant cash advances. But put briefly, MCAs give you a sum of money upfront. Then, you repay that sum, plus a fixed fee, with a fixed percentage of your future credit card sales.

On the one hand, merchant cash advances provide a source of funding to businesses that may not qualify for traditional business loans. On the other hand, the fees and APR (annual percentage rate) on MCAs are sky-high compared to the fees on other financing. Interest rates often get into the double and even triple digits. MCAs are notorious for their predatory nature, and they’re not subject to the same regulations as other types of financing. This could explain the extremely high APRs, fees, and interest rates. 

So you can see why Square, PayPal, and Stripe might not want to call their financing products merchant cash advances. Still, some businesses have found MCAs a valuable source of short-term working capital—say, to buy seasonal inventory so they can boost their profits. Just be careful out there.

So let’s say you understand how all this works, and you’re still interested. What can you actually expect to get?

Your financing amount and rates will, of course, depend on which company you borrow from.

For example, Square Capital offers larger maximum loan sizes than PayPal Working Capital. On the other hand, Square Capital has lower revenue requirements to qualify for a loan. And then there’s Stripe Capital, which has the lowest revenue requirements, but otherwise uses mainly hypotheticals on their website (for their loan sizes and rates). In fact, none of these companies are super forthcoming with information.

The good news? By the time you get an offer, you’ll know exactly what amount, fees, and payment percentage to expect. All three companies let you choose from a few different offers. So you might be approved for a $10,000 loan, but you’ll have options for higher and lower repayment percentages and maybe—depending on the percentage you choose—higher and lower fees.

As with any type of business financing, make sure you understand the cost of your loan before you accept.

Another difference between the three companies? Their reputations. Of the three, Square Capital is the only one with Trustpilot reviews—it has rave reviews and a 4.6 (out of 5) rating.¹ But even if you compare the reviews of their parent companies, Square Capital still comes out on top. Square has a 4.5 TrustScore, while Stripe has a below-average 2.8 and PayPal has an even worse 1.2.^2,3,4

Our research found plenty of borrowers describing positive experiences with Square Capital and PayPal Working Capital, but we didn’t find anyone who’d used Stripe Capital. That’s likely because Stripe Capital is the newest of the bunch, having launched in September 2019.

Now you know how Square Capital, PayPal Working Capital, and Stripe Capital compare at a high level. But let’s dig into a few specifics about each one.

There’s no way for you to apply for a Square Capital loan. But if you qualify, Square will let you know on your Square dashboard. Fortunately, Square reviews your eligibility daily. So if you’re eligible, you’ll know ASAP.

While Square doesn’t publish the exact algorithm it uses to determine eligibility, it does offer some general guidelines. For example, you need to process at least $10,000 in Square payments a year, have a steady stream of payments, and have a mix of new and old customers. Plus, you can expect a better offer if you’re processing more payments over time.

If you qualify, Square will offer you financing, and you’ll get to choose what size loan you want. Your fees and the percentage of sales will change with your loan size.

Square doesn’t list its fees on its website, but Fortune reports that Square Capital charges between 10% and 16% of the loan amount—and that’s consistent with what we’ve seen business owners report.⁵

Note that Square Capital requires you to repay your loan within 18 months. To make sure that happens, Square requires you to pay off at least 1/18 of your loan amount every 60 days. Ideally, the percentage taken from your credit card sales covers that 1/18—but if it doesn’t, you’ll have to make extra payments. Likewise, at the end of 18 months, you’ll have to pay off whatever remaining amount you owe.

For a more comprehensive look at Square Capital, you can check out our Square Capital review.

To qualify for financing with PayPal Working Capital, you need to have used PayPal Business or PayPal Premier for at least three months. After that, you can apply.

Note that PayPal has clearly defined revenue requirements, depending on your account type. For example, PayPal Business customers have slightly lower revenue requirements than PayPal Premier customers.

You can get loans for up to 30% of your annual PayPal sales, but your first loan will be capped at $97,000. If you successfully pay it back (and we know you will), your maximum loan size increases to $125,000 for future loans.

Frustratingly, PayPal doesn’t advertise its fees anywhere. That being said, in our research we came across business owners who said they had fees as low as 2% and as high as 25%—a pretty broad range.

Some of those business owners were on their third or fourth loan, and they claimed that they got better fee offers with later loans. So your fees will likely depend on everything from your loan amount to your repayment percentage to how many loans you’ve had with PayPal before.

So what kind of percentage can you expect? Well, on its website, PayPal says most people will pay either 5% or 10%. But we saw reports from business owners who chose to pay a much higher percentage, so you might have more options.

There’s a few final things to note about PayPal Working Capital:

• Your repayment percentage will include tax and shipping costs.
• You can have only one PayPal loan at a time.
• PayPal will monitor your sales for unexpected drop-offs.

Stripe is the latest payment processor to start offering financing—and it’s the tightest-lipped.

So we know the basics: if Stripe likes what it sees in your account, it will offer you financing. Sometimes that’s a loan with a set repayment term, and other times it’s an MCA without a specified term. Either way, your financing comes with a fixed fee, and you repay your funds with a percentage of your Stripe credit card sales.

Stripe doesn’t list its fees anywhere, and we couldn’t find anyone who had used it to tell us. At best, we know that all its examples use a 10% fee—which is consistent with fees from PayPal and Square.

Likewise, Stripe doesn’t talk about loan amounts on its site. That being said, reports suggest that most loans are between $10,000 and $20,000.⁶

We wish we could tell you more, but that’s all there is for now. We’ll update this review if Stripe decides to become more forthcoming or if we find business owners who have used Stripe Capital.

If you process a lot of credit card payments and you already use Square, PayPal, or Stripe as a point-of-sale system, then one of these working capital companies might work for you.

They can all help you get cash flow for your business even if you have bad credit—but before you dive in feet first, make sure you understand the fees and repayment terms.

Want to consider some alternative financing options? Check out our rankings of the best small-business loans.

Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.