LoanBuilder, a PayPal Service, is a small business lending option that provides short-term loans. It is essentially interchangeable with PayPal Business Loans.
However, it shouldn’t be confused with PayPal Working Capital, which works like a merchant cash advance. LoanBuilder, on the other hand, works more like a traditional business term loan.
The repayment structure is just one of the many differences between the two products. LoanBuilder loans are designed for very different businesses and cash flow scenarios compared to PayPal Working Capital.
In this guide, we’ll answer the following questions and more:
LoanBuilder provides short-term loans to small businesses. It originated under the company Swift Financial, which PayPal acquired in 2017. Swift Financial, now a subsidiary of PayPal, services the loan, while WebBank is the financial institution that provides the funding.
The traditional product that most resembles PayPal Business Loans is a business term loan. But instead of monthly payments, borrowers make automatic weekly payments.
LoanBuilder business loan amounts range from $5,000 to $500,000, with terms between 13 and 52 weeks. The application process is quick and easy, with funding available the next day in some situations.
Instead of a traditional APR, LoanBuilder by PayPal charges a flat borrowing fee, ranging from 2.9% to 18.72% of the loan amount. So, for example, if you borrowed $50,000 at a fee of 15%, your total repayment amount would be $57,500.
The repayment amount is then divided into equal weekly payments for the length of the loan term. So, if the term were 26 weeks, you’d pay $1,450 per week.
There are no other costs involved, such as an origination fee and no hidden fees. The only time you’d have to pay more is in the case of late payment or returned payment, for which there’s a $20 charge.
One of the great things about LoanBuilder, as the name implies, is that you can customize your loan. Applicants select the amount they wish to borrow and their preferred term when applying for the loan.
As you can see, LoanBuilder business loans are simple, with a transparent fee structure. Unlike PayPal Working Capital, you don’t have to use PayPal to process payments to qualify for PayPal Business Loans.
To apply for PayPal Business Loans, you will need to supply the following information:
Bank statements are only necessary if you don’t use PayPal to process payments. If you do, this information will already be in PayPal’s system. You may be asked to provide additional financial information.
You can apply for a LoanBuilder loan without using PayPal payments or a PayPal business account. You do need a verified business checking account.
Potential borrowers must meet the following minimum qualifications:
Loan Builder’s revenue requirement is one of the lowest thresholds for this type of small business loan. For comparison, many fintech companies require $100,000 in annual revenue, while traditional banks often require $200,000+.
Your business’s financial health and personal credit score determine your loan amount, cost, terms, and weekly payment size. If your cash flow shows that you can safely afford weekly payments, you are more likely to be approved for the borrowing amount you’re looking for.
Instead of a standard interest rate, LoanBuilder has a fixed fee, which is factored into weekly payments and automatically deducted from your business bank account or PayPal account (whichever one you use to collect sales). You can choose the day of the week on which payments are deducted.
There are no origination fees or prepayment penalties. However, the full borrowing fee is calculated when you apply. Thus, even if you pay early, you won’t save any money because you’ll have to pay the full fee.
LoanBuilder does not require collateral, but you must sign a personal guarantee. This means that PayPal could potentially seize your personal assets to make up for the lost funds in the event of a default.
Payments are reported to the business credit bureaus, not personal credit bureaus. This means your payment history will affect your business credit score but not your personal credit score.
Follow these steps to apply.
Eligibility is determined via an online questionnaire that reportedly takes 5-10 minutes to fill out. In the questionnaire, you’ll provide the loan’s purpose, annual revenue, number of full-time employees, industry, and necessary business and personal information.
This will determine if you are pre-qualified. Completing the eligibility questionnaire does not affect your credit.
If you pass the pre-qualification stage, you will be asked to enter your desired borrowing amount and terms. Your selections will determine your fees and the size of your weekly payment.
About five minutes after customizing your loan, you will receive an email from a PayPal representative. This email will either ask for more documents (i.e., bank statements) or contain your loan contract.
If you sign the contract and provide the required documentation before 5 pm on a weekday, funds may appear in your business bank account the next business day. Otherwise, it may take a few business days for funds to appear in your account.
PayPal will automatically deduct payments from your business checking account weekly via ACH transfer. If you aren’t sure you’ll have enough money in your account to fulfill a weekly payment, consider changing the day of the week on which PayPal deducts the payment. If your payment is due and your account does not have enough money to make it, you will receive a $20 fee.
You can also contact PayPal’s customer service team about changing your fees or weekly payment size. They may be able to make small changes that make your loan easier to afford.
Repeat customers can often qualify for larger borrowing amounts. Once you’ve paid off your first loan, you can apply and see if you qualify for a larger amount or lower borrowing fee.
With terms of up to 52 weeks, LoanBuilder is considered short-term financing. Most sources of short-term funding typically distribute smaller amounts, i.e., up to $250,000.
LoanBuilder, on the other hand, offers up to $500,000. This makes LoanBuilder ideal for businesses that quickly need large amounts of cash, which is a prevalent scenario in the small business world.
And unlike other short-term lenders, LoanBuilder allows you to customize your borrowing amount and terms. This will enable you to coordinate your loan with your desired investment’s exact cost and time frame.
Many short-term lenders offer just a few options for borrowing amounts and terms (i.e., six months, twelve months, eighteen months). As a result, you could end up borrowing too much or too little.
Despite LoanBuilder’s flexibility with borrowing amounts and terms, there’s no flexibility in the repayment structure. All borrowers must make weekly payments.
When combined with LoanBuilder’s considerably high rates, these payments could put severe pressure on your finances. Other short-term lenders might allow you to choose the repayment frequency most conducive to your cash flow.
Also, even though LoanBuilder doesn’t charge prepayment penalties, there’s no financial incentive to pay off the loan early. Some business lenders don’t calculate your total fee when you apply. Thus, paying early means paying less interest and fees than if you paid on schedule.
LoanBuilder also restricts more industries than most fintech companies. Many online lenders won’t service adult entertainment or gambling businesses, but LoanBuilder has one of the most extended lists of prohibited industries we’ve seen.
Prohibited industries include:
Lastly, LoanBuilder does not report your payments to personal credit bureaus. Though some business lenders prioritize business credit, most emphasize personal credit. For this reason, paying off a loan with LoanBuilder might not increase your chances of accessing better products from other lenders.
Pros:
Cons:
In 2006, a business financing company called Swift Capital created LoanBuilder. About eleven years later, PayPal acquired Swift Capital and began marketing their product as “PayPal Business Loans.”
Some insiders believed PayPal would eventually drop the LoanBuilder brand, but its brand recognition makes that problematic.
But even before the acquisition, LoanBuilder has always been a legitimate business lender. You can visit the LoanBuilder website to read their privacy policy, explaining how they collect and protect your personal information through SSL encryption.
LoanBuilder by PayPal has mostly positive reviews and some negative comments. It has a 4.4 rating on TrustPilot with over 5,000 reviews.
Most users praise the simple application process and fast funding time. Many customers talk about the quality of customer service. LoanBuilder’s customer service team is available Mon-Sat by phone. Customer service is also available via email and social media, but it does not have a chat feature.
The few negative reviews talk about the high cost of borrowing and struggling to make weekly payments. While PayPal does let you change the day your repayment is due, some customers found the repayment structure too rigid.
One customer commented that the agent told them they could save money by paying the loan off early, which isn’t true. Some other negative comments talked about PPP loans, but as those carried complex structures and are no longer offered, that information is no longer relevant.
You will fill out a questionnaire during the pre-qualification stage to check your eligibility. You can also review the estimated offers. These actions will not affect your credit score.
However, if you decide to move forward with the application, PayPal will check your credit. Hence, your credit score might drop during the final stages of the application process.
Instead of a traditional interest rate, LoanBuilder carries a fixed fee of 2.9% to 18.72%. The one-time fee is applied to your loan amount to create the total cost of the loan.
Due to the wide range of terms and borrowing fees, calculating effective APR is difficult. For example, a $100,000 at a 10% borrowing fee and 20-month term would roughly equal a 39.17% APR.
You do not need to use PayPal’s POS service to get a loan from LoanBuilder. You do, however, need an account with PayPal Business.
If LoanBuilder declines your application, you will receive an email explaining what prevented your approval within two days. You can then apply again in 30 days.
A denial from LoanBuilder also doesn’t mean you’ll see the same result with another business lender. For instance, LoanBuilder may have declined your application after determining that your cash flow cannot withstand weekly payments.
Thankfully, plenty of other business lenders offer working capital loans with similar borrowing limits and requirements with different repayment frequencies. You could theoretically access the same borrowing amount but be able to make monthly or even bi-weekly payments. And just like LoanBuilder, the money will appear in your bank account in 24-48 hours.
If you were declined because of poor credit, some bad credit business loan options might be available with other business lenders.
LoanBuilder is an excellent option for businesses that quickly need a substantial amount of cash but cannot qualify for bank loans. But if your cash flow cannot sustain weekly payments, this repayment structure might limit your capacity for growth.
LoanBuilder isn’t the only business lender that allows you to customize your borrowing amount and terms. If you explore other options, you might find another business lender that offers the main advantages of LoanBuilder but without its most significant disadvantages.
For this reason, we give LoanBuilder a 3.8 out of 5 rating and believe you should only pursue LoanBuilder if it checks every box for your desired investment.
Disclaimer: The LoanBuilder trademark is owned by Swift Financial LLC, a wholly owned subsidiary of PayPal, Inc. and its use herein is for reference purposes only and it does not indicate sponsorship or endorsement from Swift Financial LLC, a wholly owned subsidiary of PayPal, Inc.
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