PayPal vs. OnDeck: Which small business lender is right for you?

Whether you choose PayPal or OnDeck, you can get short-term business loans that welcome startups and small businesses with relaxed requirements. Both accept businesses in newer stages of growth than is usual with traditional lenders — one year for OnDeck and nine months for PayPal’s short-term business loan.

But businesses with minimal revenue and no credit can find options with PayPal, while OnDeck’s loose requirements stay on par with other online lenders. Both also offer different types of short-term loans that serve different needs. Let’s look at these Paypal and OnDeck business loans in depth to see which one suits your business.

PayPal vs. OnDeck at a glance

Both PayPal and OnDeck are short-term business lenders that can grant funding the same or next business day. But PayPal drops its credit score requirements to include bad credit borrowers, while OnDeck is suited for fair-to-good credit. Each lender also offers slightly different loans that serve different business purposes.

PayPal business loans

PayPal’s business loans give you the chance to fund small expenses as low as $1,000 or $5,000, depending on which loan you choose. It also keeps its loans accessible to less-established businesses than traditional lenders accept.

For example, its short-term loan requires a personal credit score of 580 and low annual revenue of $33,300. Its working capital loan doesn’t check your credit and accepts annual revenue as low as $15,000, provided that revenue is streamed through a PayPal business account. These lending requirements are some of the lowest possible in the online loan landscape.

Its working capital loan works like a merchant cash advance because you repay the loan out of a percentage of each PayPal sale. Once approved, you can get funding within minutes.

Pros

• Accepts bad or no credit
• One of the lowest revenue requirements
• Funds in minutes or next day

Cons

• Need a PayPal business account
• Not transparent about fees
• First-time borrowers get lower loans

OnDeck business loans

OnDeck offers a short-term loan and line of credit, available to fair or good credit borrowers with a personal credit score of 625 or higher. But OnDeck’s small business loans offer lower loan sizes than is typical.

The business line of credit goes up to $100,000, while many credit lines go up to at least $250,000. But with OnDeck, your loan is automatically reset to a new term with each new draw of funds. Since the original loan is folded into the new loan, you’ll need to account for a higher weekly repayment. Extending terms from the original loan also leads to paying more in interest in the long run.

The short-term loan goes up to $250,000, while many term loans reach $500,000 or higher. If eligible, you could also pay off the loan early without penalty. But if you’re not eligible for the prepayment benefit, you’ll be on the hook to pay 75 percent of the original loan’s interest. That could end up being a higher prepayment penalty than other short-term loans available.

Pros

• Lenient requirements
• Build business credit
• Same-day funding

Cons

• High starting interest rates
• High fees
• Only secured loans

How to choose between PayPal and OnDeck

PayPal approves businesses with bad credit, no credit or those in a tight spot financially. You need a personal credit score of 580 for its short-term business loans, but it doesn’t check credit at all for its working capital loan. Its revenue requirements range from $15,000 to $33,300 based on the loan. You’d be hardpressed to find more lenient lending criteria elsewhere.

OnDeck keeps lending requirements low too, though it’s tighter than PayPal’s. You need at least one year in business, a personal credit score of 625 and at least $100,000 in revenue. This minimum criteria is fairly standard for an online lender, but lenient compared to traditional lenders. Not all businesses that meet these standards will be approved.

OnDeck’s short-term loan offers slightly longer terms up to 24 months, compared to the PayPal short-term loan up to 12 months. But PayPal’s working capital loan is more flexible with no set repayment term. OnDeck also offers a revolving line of credit, not an option you can find with PayPal.

Choose PayPal for a no-credit-check business loan

PayPal’s business loans are just plain accessible to very small businesses. Its working capital loan doesn’t use your business’s credit score, while its short-term loan is suitable for those with poor credit. It’s rare to find a no-credit-check business loan.

PayPal also accepts startups earlier in their growth. Its short-term loans are available to businesses with as little as nine months under their belts. And as mentioned, you won’t find many lenders that accept revenue as low as PayPal’s $15,000 minimum.

Choose OnDeck for flexible working capital

OnDeck gives you the choice between a term loan or line of credit, both popular options for small business owners. You can use either of these to fund relatively small expenses up to $250,000 for its short-term loan or up to $100,000 for its line of credit.

OnDeck is also the more flexible option to get working capital. You’ll create an account to manage your loan online, but it doesn’t restrict how you take payments. PayPal business loans require you to have a PayPal business account, and its working capital loan requires that you process sales through PayPal, charging fees for each transaction.

Alternatives

Neither PayPal or OnDeck offer loans in high amounts or with long terms. If you’re needing these or other features, you could consider business financing alternatives like:

Fora Financial

Fora Financial also offers a sizable revenue advance and short-term loan, going up to $1.4 million. Yet it can cover small expenses down to $5,000 as well.

Fora Financial also works with fair-to-bad credit and startup businesses, similar to PayPal except even more lenient. Startups can apply for its revenue advance with a personal credit score of 600 and six months in business.

Or they can get its short-term loan with a personal credit score of 500 and three months in business, much lower than most online or traditional lenders.

Business credit cards

A business credit card could cover the same expenses as a line of credit, though not all cards will have OnDeck’s $100,000 credit limit. The difference between a business credit card and line of credit is that you can avoid paying interest if you consistently pay the balance in full each month.

If you are charged interest on a credit card, you may be able to pay less than you would with OnDeck, which starts rates at 29.9 percent. The best small business credit cards tend to offer interest rates in the 18 percent to 30 percent range. Credit cards also give you the benefit of cash back or points that you can redeem for travel or purchases.

SBA loans

Loans offered through the Small Business Administration (SBA) programs could offer you funding with lower interest rates. While SBA loans are offered through approved lenders, the SBA sets maximum interest rates that lenders can charge. Those currently range from 10.5 percent to 16.25 percent, depending on the type of SBA loan.

You’ll also get longer repayment terms than PayPal or OnDeck, typically up to 10 years for working capital loans. An SBA 7(a) loan works well for these general, day-to-day expenses or to use for real estate or refinancing debt.

The downside is that lenders may have tight requirements when applying because SBA loans are attractive to small business owners. If you don’t think you’ll qualify, you could go with a Community Advantage loan that funds up to $350,000 through mission-based lenders. Similarly, SBA microloans offer loans up to $50,000 through nonprofits and other nontraditional institutions. Both types of loans aim to support underserved communities, including women, veterans or minorities.

Bottom line

Both PayPal and OnDeck are solid options if you have subprime credit and low revenue. They both offer short-term business loans that you can use as working capital for operating costs or other small expenses. Both also offer speedy funding within a day or two of applying if you’re approved. But you’ll want to compare interest rates, fees and repayment terms to see which lender is ideal for your situation.

Frequently asked questions

• How much can you borrow from PayPal business loan?

  PayPal offers different loan amounts for first-time versus repeat borrowers. For its short-term loan, first-time borrowers can get up to $100,000 ($150,000 for repeat borrowers). For its working capital loan, first-time borrowers can get up to $150,000 ($250,000 for repeat borrowers).

• Can PayPal business loans be paid off early?

  Yes, you can pay off PayPal business loans early without early repayment fees. For the working capital loan, you don’t have a set repayment schedule. You repay from a percentage of sales until the loan is paid off. But you will be charged the full fee for either loan, even if you repay early.

• Do PayPal business loans require a personal guarantee?

  PayPal requires a personal guarantee for its short-term business loans. But it’s not needed for the working capital loan.