LoanBuilder was the previous name for PayPal’s business loan product. This is one of two business financing services offered by PayPal. The other is PayPal Working Capital, which works like a merchant cash advance. PayPal Business Loans, on the other hand, works more like a traditional business term loan.
Repayment structure is just one of the many differences between the two products. Compared to PayPal Working Capital, PayPal Business Loans are designed for very different types of businesses and cash flow scenarios.
In this guide, we’ll answer the following questions:
What Is LoanBuilder?
PayPal’s business loan product was formerly called LoanBuilder. Today, however, PayPal refers to the product simply as PayPal Business Loans.
The traditional product that most resembles PayPal Business Loans is a business term loan. But instead of monthly payments, borrowers make automatic weekly payments.
You can borrow up to $500,000 in terms of up to 52 weeks. Unlike PayPal Working Capital, you don’t have to use PayPal to process payments to qualify for PayPal Business Loans.
What Do You Need to Apply for LoanBuilder?
To apply for PayPal Business Loans, you will need to supply the following information:
- Total annual revenue
- Business start date
- Owner’s Social Security number
- Business Tax ID number
- Four months of business bank statements
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 also be asked to provide additional financial information, depending on your business’s financial health and performance history.
Other Important Factors for LoanBuilder:
Eligible businesses must have a PayPal Business account. You don’t need to use PayPal to process payments; you just have to be registered with PayPal Business.
Eligible businesses must be in business for at least nine months and earn at least $42,000 in annual revenue. The minimum credit score is 550. Borrowers also cannot have any personal bankruptcies.
For LoanBuilder, You Need to Know That:
The amount, cost, terms, and weekly payment size of your loan are determined by your business’s financial health and your personal credit score. 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 traditional interest rate, LoanBuilder has a fixed fee of 6.49% to 19.31%. The fee is factored into weekly payments, which will automatically be deducted from your business bank account or PayPal account (whichever one you use to collect sales). You can choose the day of the week in 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.
Collateral is not needed, but you will need to sign a personal guarantee. This means that in the event of a default, PayPal could potentially seize your personal assets to make up for the lost funds.
Payments are reported to the business credit bureaus, but not the personal credit bureaus. This means your payment history will affect your business credit score but not your personal credit score.
How To Apply With LoanBuilder:
The name “LoanBuilder” stems from the fact that borrowers can customize their amount and terms during the application process. If approved, you can receive funds in as soon as one business day. Here’s how to get started:
Step 1: Fill Out 5-10 Minute Questionnaire
Eligibility is determined via an online questionnaire that reportedly takes 5-10 minutes to fill out. You can also check your eligibility over the phone. In the questionnaire, you’ll provide the purpose of the loan, annual revenue, number of full-time employees, industry, and necessary business and personal information. This will determine if you are pre-qualified.
Step 2: Select Borrowing Amount and Terms
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.
Step 3: Sign Your Loan Contract
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 PayPal Business account the next business day. Otherwise, it may take a few business days for funds to appear in your account.
LoanBuilder: Post Funding
PayPal will automatically deduct payments from your business checking account every week. If you aren’t sure that you’ll have enough money in your account to fulfill a weekly payment, considering changing the day of the week in 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 reach out to 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.
What are the Advantages of LoanBuilder?
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 need large amounts of cash very quickly, 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 gives you the ability to coordinate your loan with the exact cost and time frame of your desired investment. 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.
What are the Disadvantages of LoanBuilder?
Despite LoanBuilder’s flexibility with borrowing amounts and terms, there’s no flexibility when it comes to 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 that is most conducive to your cash flow.
Also, even though LoanBuilder doesn’t charge prepayment penalties, there’s no financial incentive to paying 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.
Lastly, LoanBuilder does not report your payments to personal credit bureaus. Though some business lenders do prioritize business credit, most of them place more emphasis on personal credit. For this reason, paying off a loan with LoanBuilder might not increase your chances of accessing better products from other lenders.
Frequently Asked Questions
Here are some common questions potential borrowers might have about LoanBuilder:
Will Applying for a Loan from LoanBuilder Affect My Credit?
During the pre-qualification stage, you will fill out a questionnaire 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 indeed check your credit. Hence, your credit score might drop during the final stages of the application process.
What is the Interest Rate on a PayPal Business Loan?
Instead of a traditional interest rate, LoanBuilder carries a fixed fee of 6.49% to 19.31%. If you take out a $100,000 loan for LoanBuilder’s minimum term of 13 weeks, your APR could range from 44.57% to 131.75%.
Do I Need a PayPal Account to Get a Loan from LoanBuilder?
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.
Is LoanBuilder Legit?
What If I’m Declined By LoanBuilder?
If LoanBuilder declines your application, you will receive an email within two days that explains what prevented your approval. You can then apply again in 30 days.
Failing to earn approval 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 similar borrowing limits and requirements as LoanBuilder along with different repayment frequencies. You could theoretically access the same borrowing amount, but instead of weekly payments, you may 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.
Making Your Decision
LoanBuilder is an excellent option for businesses that need a substantial amount of cash very quickly 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 also isn’t the only business lender that allows you to customize your borrowing amount and terms.
If you explore other options, you just might find another business lender that offers the main advantages of LoanBuilder but without their most significant disadvantages. For this reason, you should only pursue LoanBuilder if it checks every single box for your desired investment.