A startup founder claims PayPal froze his funds then offered him a loan

Casey Rosengren - CEO of travel company Hacker Paradise - has claimed on Medium that after the company adopted PayPal as a payment method, it froze "all of the money we had in the account," which was around $30,000 (£20,000).

Rosengren was able to get $10,000 (£6,800) "released," but the other two-thirds remained inaccessible, because Hacker Paradise was a "risky account."

(The money has since all been released, prompting Rosengren to write his post.)

While the startup's funds were inaccessible PayPal apparently went on to offer him a loan under its Working Capital business loan scheme.

Rosengren checked with PayPal, which confirmed the offer was real: "While marketing offer of credit certainly seems at odds with the collateral being held on your account a thorough review of your account and our lending policy [shows] this was not an offer made in error."

PayPal did not provide a comment for this story.

As Rosengren put it: "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."

Hacker Paradise didn't take the loan - because it had funds elsewhere it was able to utilise. But another startup might not be in this position, forcing it to take the loan. PayPal Working Capital doesn't charge interest on its loans, but it charge a "single, fixed fee" that is based "on your business's PayPal sales history, the loan amount you apply for, and the daily repayment deduction percentage you select," according to the FAQ page.

"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," Rosengren writes. "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."