Paypal froze our funds, then offered us a business loan

Casey Rosengren
3 min readJan 7, 2016

About a year ago, we made the decision to use Paypal as the primary payment method for our company, Hacker Paradise. After about a month, they froze all of the money we had in the account — around $30,000.

For context, our company runs trips around the world for developers, designers, and entrepreneurs who want to work and travel. Last year, we had vendors all over the world, in places like Bali, Barcelona, Thailand, and Tokyo, so it wasn’t too surprising that our account got flagged.

We reached out to Paypal’s startup evangelist, and with his help, were able to get $10,000 released. Since we were a risky account, they said they needed to hold on to the remaining $20,000 for up to six months.

We run a low-margin ops-heavy business, so we started scrambling to make up the gap in our cash flow. With personal funds and a healthy dose of luck, we managed to keep most our vendors happy.

A few months later, however, we noticed something surprising. Advertisements started popping up on our account for “PayPal Working Capital” business loans:

A screenshot of one of the ads
A full-page ad displayed immediately after logging in

After exploring a bit, it became clear that we were being offered a business loan based on our Paypal volume. Unfamiliar? Basically, they offer you a loan based on sales history, which you then pay back over time as a percentage of any sales done on the account.

On one hand, Paypal was saying that our account was too risky for them to release the $20,000 they’d taken as collateral. On the other hand, they were saying our account was credible enough to offer us a loan.

We chose to approach this in the spirit of Hanlon’s Razor: when in doubt, assume ignorance, not malice. So, we emailed a screenshot of the ad above to the startup evangelist, assuming it was some kind of clerical error.

After a few weeks, we received the following response from someone on the Paypal Working Capital team — the gold is in paragraphs 2 and 3:

To paraphrase: “It may seem weird that we’re holding collateral on your account and offering you a loan, but that was not a mistake! You’re still eligible. Contact me if interested.”

For a new business, freezing $20,000 in funds could be catastrophic. In our case, we were able to bridge the gap with personal funds in order to stay out of the red. However, a young, cash-poor company could be left with no other option than to take Paypal up on their offer. Paypal causes a cash-flow crisis and then offers to fix it.

It’s unclear whether they’ve changed their policy, but we have stopped seeing ads for loans. This may be because our account has a lot less activity on it nowadays… thank you, Stripe :)

For those interested, the CEO of Paypal announced in October that they’ve lent over $1 billion to small businesses through Paypal Working Capital loans.


This happened back in September, and our funds were just released, which is why we’re publishing now (we didn’t want to make waves while they were still holding $20k of our funds).

While the overall experience with Paypal was quite poor, we really appreciate the efforts of the startup evangelist we spoke with, George Kartakis. It was clear he was doing everything he could to advocate for us internally, but his hands were mostly tied when up against Paypal’s bureaucracy.

We’re extremely grateful to him for helping to negotiate down the amount of capital they kept as collateral. As a young, low-margin business, the amount he was able to get released made a huge difference.



Casey Rosengren

Casey writes about life, startups, meditation, and self-care. He is a founder of Hacker Paradise and Recess Labs.