PayPal business account review and alternatives for small businesses

6 minute read

PayPal has been around for over 20 years, and is now a household name for many of us. There are upwards of 277 million registered customers using PayPal to make online purchases, send money to friends and family, get paid for freelance work, and more.

As a business owner, you might be considering getting a PayPal business account so you can offer another payment route to your customers. With a business account you might also be able to get access to handy perks not open to personal PayPal customers. However, you should know a bit more about the costs, advantages and disadvantages of using PayPal for business before you make the leap.

This helpful overview will cover everything from how to accept PayPal business payments, the fees and costs involved, and how you can use PayPal to invest in your business. We will also look at some alternative options, including Wise borderless for business, to help you decide if PayPal is the one for you.

This article covers:

  • Accepting PayPal payments
  • PayPal fees for processing business transactions
  • PayPal business account credit and loans
  • Great alternatives for PayPal business services
  • How to decide if the PayPal business account is right for you

Accepting PayPal payments

PayPal is a very familiar payment method for many customers today. In fact, it’s the most commonly used digital wallet.¹ As a business owner, you can use PayPal to support your company’s growth in a number of ways, from taking online and in-person payments, to getting a loan to fund investments. Here’s all you need to know.

What kind of payments can be accepted through PayPal? ¹

You can use PayPal to accept payments online, get paid in person, or charge customers using online invoices.

Getting paid online

If you sell through your own website, you can add a PayPal payment button to allow customers to pay directly with PayPal without needing to leave your site. This can improve conversion as it makes it easier than ever for customers to buy from you. You can either copy and paste the code you need to get your own simple PayPal button, or work with a developer to add something more custom made.

Getting paid in person

While online payments work for digital services, and businesses which deliver goods by mail, you’ll need a different solution if you sell in person to your customers. With PayPal you can get paid using your smartphone and a card reader, which can accept magstripe cards, contactless or chip and pin payments. As the business owner you don’t usually need to pay upfront for the card reader or service. Instead there’s a fee per transaction which you pay to PayPal.

Business invoices with PayPal

Finally, you can also use PayPal to create invoices. This is useful if you’re a freelance worker and need to send a professional invoice to a client — and make it as simple as possible to pay. You’ll be able to make your invoices impactful with your own branding, track payments online, and set up recurring invoices for regular work.

PayPal fees for processsing business transactions

PayPal fees for processing business transactions ²

PayPal will take a fee every time you process a payment via your PayPal business account. Here’s what you need to know:

Sale type PayPal business fee
Selling goods and services
  • Send/Receive money domestically - 2.89% of the transaction total + a fixed fee based on the currency received
  • You may also pay an international sales fee, depending on the circumstances — more on that below
PayPal Here
  • Receiving payments for sales, in store — 2.7% of the transaction total
  • Receiving international payments using PayPal Here — fee for receiving domestic PayPal Here transactions + 1.5% additional percentage-based fee

Other PayPal merchant rate costs ²

It’s important to understand the full range of costs which may impact your business if you choose to use PayPal. There may be additional fees if you do business internationally, and the fee structure might be different if you mainly take small payments, and choose to opt for the micropayment option.

Here are a few costs to look out for. The full details are available online, on the PayPal business website, or you can use this simple PayPal calculator.

Service required Cost
Withdrawing funds to your bank account
  • Standard withdrawals to a local bank account are free (except for currency conversion fees — 3.00%, or such other amount as may be disclosed to you during the transaction.)
  • For a faster withdrawal you can pay 1.5% of the withdrawal amount, for a fee of $0.25 - $15
International sales
  • If you buy or sell goods/services overseas, there are extra fees to pay. On top of the above mentioned domestic fee you’ll have to pay an international fee of 1.5% — excluding Amex payments, which are free of charge
Micropayments You may apply to receive Micropayments pricing for certain lower value transactions. In this case the charges are as follows:
  • Domestic micropayments in the US — 4.99% of the transaction total + a fixed fee based on the payment currency
  • International micropayments — On top of the domestic fees above you’ll be charged a 1.5% international micropayment fee
Refund fees
  • If you make a refund, you will not get any of the fees you have already paid returned to you

PayPal business account credit and loans

PayPal offers more than payment solutions to business customers. You may also be able to offer PayPal credit to your customers, or get yourself a loan to invest in your business. Here are some options which may be open to you.

PayPal Credit ³

PayPal credit is a way of letting your customers pay for their purchases over time, by taking financing from PayPal. You can offer this option on your website by adding a PayPal credit banner or button.

If a customer buys something from you using PayPal credit, you get paid as usual. However, the customer is entering into a finance agreement with PayPal, taking consumer credit to buy your products. It’s then their responsibility to pay PayPal back according to their agreement. You’ll have no further involvement with the credit agreement once you have taken payment for your goods.

PayPal Business Loans ⁴

As well as offering consumer credit, PayPal can give business owners a loan to help growing businesses. There are 2 types of loan — the PayPal business loan and the PayPal working capital loan.

Business loans are available for businesses with at least $42,000 in annual revenue, and can be from $5,000 to $500,000 depending on your eligibility and circumstances. Working capital loans are from $1,000 to $125,000, and available for businesses which have had a PayPal business account for at least 90 days, and with at least $15,000 of payments processed with PayPal in the last 12 months.

If you take a working capital loan, you’ll repay a fixed portion of the loan every time you process a payment through PayPal. There’s also a minimum repayment every 90 days.

The business loan has a weekly repayment, which is deducted automatically from your business bank account. If you’re interested in taking either of these loan types, you’ll need to read all the small print, including the costs and penalties, online.

PayPal business solutions alternatives

PayPal business solutions alternatives

PayPal provides a range of options for businesses. However, there are alternatives out there which offer some or all of the features available through a PayPal business account. It’s smart to think carefully about what your business actually needs, and pick the service which gives you the best balance of cost and convenience, to ensure you’re not paying a premium for services which are not important to you.

If you need a payment processing option but are not wedded to PayPal you might find an alternative like Apple Pay does what you need for a lower cost. Or you could try Google Wallet, WePay or Dwolla.

If you are planning on creating invoices, and don’t need to take online payments through your website, you might decide to simply use your existing accounting software to create simple and professional invoices. Xero, Freshbooks or Wave could give you the tools you need instead of PayPal.

Finally, if you’re doing a lot of business with international customers, it’s worth comparing the PayPal business fees for international transactions with some alternatives before you commit.

One good option for businesses which need to make and receive regular international payments is the Transferwise borderless account for business. You can send and receive payments, hold your money in multiple different currencies and switch between them when you want to. Currency exchange is done using the mid-market rate with no markup. There’s just a transparent fee to pay for the transaction, which can work out to be up to 14x cheaper than using PayPal. You can also create and send your invoices by using our downloadable free invoice templates.

Is the PayPal business account right for my business?

Whether or not PayPal business is right for you will depend on your business, and your personal preferences.

It’s well worth considering the risks involved with using PayPal for business. PayPal isn’t a bank and so your funds are not covered by FDIC insurance. And as with any online service, there is always the risk of your account being hacked or compromised. PayPal have also been known to freeze business accounts which may mean your money is tied up and can’t be accessed until any issues are resolved.

To decide if PayPal for business is the one for you, you’ll need to think carefully about what services you actually need, and review alternative options to see which is cheapest and most convenient.

Make sure you get a full understanding of all the fees applied by PayPal before you decide, and think about both what you need from a service provider today, as well as any future needs you may have as your business develops. By doing a bit of research and looking at all of the alternatives out there, you’ll find the right solution for your business.

1. PayPal merchant services for mid-size and small business owners
2. PayPal credit card processing, transaction and merchant account fees
3. PayPal special promotional financing
4. PayPal business loans
5. Wise Business

All sources checked 18 June 2019

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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