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Thread: PayPal Working Capital

  1. #11
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    I was actually thinking the 30% payback was the amount you had to pay back... so if you're running a business and you get this $5K loan and then sell the results for $7100. Here's what happens:

    $7100 * 30% = 2130 => how much you must immediately pay back on the loan for what you borrowed
    $7100 - 245 - 2130 - 5000 = $-275 => amount in your pocket
    $5000 - $2130 = $2870 => loan balance
    So you borrow $5K, buy $5K of inventory and ended up with a $275 loss AND still have a loan balance.

    This is why I don't think it's such a great deal unless your markup actually pays down the loan AND leaves you with a profit.

    Let's try a 100% markup:

    $5K loan, $10K sales.
    $10000 * 30% = $3000 => how much you pay back of the loan
    $10000 - 245 - 3000 - 5000 = $1755 => amount in your pocket
    $5000 - $3000 = $2000 => loan balance

    So you borrow $5K, and at the end of the transaction you have $1755 in your pocket PLUS a $2000 loan balance you still need to pay off. So you're still net-negative.

    I just don't see how this is a good deal without a MUCH higher markup... and 100% is a damn good markup on most things.
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    Here is another thing that doesn't add up.

    Borrowing 5 grand which would allow the purchase of inventory that could be sold for $ 7,100.00 that would take 6 months to sell and they would keep 30% of the transactions.

    To sell $ 7,100 in inventory in 6 months would indicate sales of 1,1033.33 each month. ($ 7100/6). With them keeping 30% of the transactions and applying them towards the loan that would be $ 355.00 per month (1033 x. .30) they keep. At $ 355.00 per month it would take around 14-15 months to pay off the loan.

    I am guessing the difference is that there are pre-existing sales that would also be charged the 30% .
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    Have considered looking locally for funding? Or on the internet like kiva?

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    If they are taking 30% of sales, they are taking 30% of COG + 30% of the markup. So in order to keep a 30% profit margin you will need to have a markup of 85.7%. If you also want to recoup the $245 fee, you would need a mark-up of 92.7%. For break even, the mark-up would need to be 43%.

    Here is how the numbers work out.

    30% profit margin
    1.30 * $5000 = $6500 (income with 30% mark-up)

    To maintain that while losing 30% of sales
    (1.857 * $5000) = $9280 (1.857 => 85.7% mark up)
    $9285 - (9285 * .3) = $6499.50 (income goal from above)

    Break Even
    Income goal = $5000
    (1.43 * $5000) = $7150
    $7150 - ($7150 * .3) = $5005
    So if your markup is above 43% you will be able to make enough to replace the good sold, but will not have any profit.

    This is basically a secured loan with a 4.9% rate. (245/5000 = 4.9%).

    I would look through the fine print about defaulting, missing payment and partial payments. Sometimes, they will bump the rate to 20%+ for almost any reason. Also look into min required payments. I suspect there will be a monthly min and also a max time length.
    Last edited by nealrm; 12-09-2016 at 09:36 PM.
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    Quote Originally Posted by Freelancier View Post
    I was actually thinking the 30% payback was the amount you had to pay back... so if you're running a business and you get this $5K loan and then sell the results for $7100. Here's what happens:

    $7100 * 30% = 2130 => how much you must immediately pay back on the loan for what you borrowed
    $7100 - 245 - 2130 - 5000 = $-275 => amount in your pocket
    $5000 - $2130 = $2870 => loan balance
    So you borrow $5K, buy $5K of inventory and ended up with a $275 loss AND still have a loan balance.

    This is why I don't think it's such a great deal unless your markup actually pays down the loan AND leaves you with a profit.

    Let's try a 100% markup:

    $5K loan, $10K sales.
    $10000 * 30% = $3000 => how much you pay back of the loan
    $10000 - 245 - 3000 - 5000 = $1755 => amount in your pocket
    $5000 - $3000 = $2000 => loan balance

    So you borrow $5K, and at the end of the transaction you have $1755 in your pocket PLUS a $2000 loan balance you still need to pay off. So you're still net-negative.

    I just don't see how this is a good deal without a MUCH higher markup... and 100% is a damn good markup on most things.
    For the 100% mark-up you are not net-negative. You would have $1755 in cash + $5000 in inventory - $3000 loan liability = $3755 in the black. Depending on how you interpret your numbers, you either didn't include in receiving the $5000 loan or didn't include in the $5000 re-placed inventory.
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    I messed up and double counted the $5K in costs.

    $7100 * 30% = 2130 => how much you must immediately pay back on the loan for what you borrowed
    $7100 - 245 - 2130 = $4725 => amount in your pocket
    $5000 - $2130 = $2870 => loan balance
    So you borrow $5K, buy $5K of inventory and ended up with $4725 in cash and a loan balance that's $2870 = $1855.

    However, this only works if you can sell all your inventory before the note comes due. The clock is not your friend if you have delays in getting your inventory or delays in getting enough people to buy it. But if you believe enough in it and can cover the loan in case you don't sell anything, I've moved to "I can't see why not", although you probably want more mark-up to start so you can discount later if things aren't moving.
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    Another benefit of taking a loan out with PayPal is that you don't need to wait a long time for everything to finalize. It's pretty much instant. Same goes for people who process sales using Square. They offer a very similar program.

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