[brass_cannon]

PayPal is horrible at providing support, documentation and resolution channels in these type of situations. They also, at times, can appear to arbitrarily take adverse action against certain accounts.

However, it's important to note that they hold the risk on these transactions. If the business goes under before pre-orders can be fulfilled, and the business doesn't have the funds to take care of all the chargebacks this event will cause, guess who pays out? PayPal. This scenario is the exception to be sure, but it happens with enough frequency that PayPal must implement some form of risk mitigation.

There could be other factors in play here, as well. Does the business have a poor history with other processors? Do the founders have poor credit? Maybe not, but maybe so. It's difficult to arrive at a concrete conclusion from this post. That being said, it's a possibility that PayPal has not assessed risk appropriately in this case. We simply can't tell.

Where PayPal could make situations like this better is by providing clear expectations up front as to how they assess risk, and what not to do with your account ahead of time. They could provide reasonable support to work with the merchant and get additional metrics / a better feel for the account. They could provide the above context to merchants when this happens. The best merchant account providers do this. PayPal fails spectacularly at the above, which is enough for businesses to strongly consider alternatives.

[dangrossman]

One issue is that a lot of these developers and small businesses fail to change their account type from Premium to Business. Doing so does not change any fees or features, it simply attaches a business name to the account instead of an individual's name, but it also changes the help UI and gives you access to the business support phone line. When there's an issue with a business account, PayPal actually calls you, in my experience. And when I call their phone line, a human being answered right away.

[tomp]

I wish I could upvote you more than once. A very reasonable and balanced argument.