> "Merchant cash advances do not have an interest rate. Instead, Shopify will purchase a set amount of your future receivables at a discount."<p>Their page never specifies a "discount" rate and only show the 10% remittance rate. This makes their example table at the bottom near fraudulent because the "daily revenue" column is already discounted. I'd bet their discount rate is the same ~13% it was six months ago [src].<p>They know your revenue history, so I expect they're offering something which will likely take you 9-12months to pay back at the remittance rate (10%) based on your projected revenue. Note since this isn't a loan, if you pay it back early by growing revenue, Shopify still makes the same returns (13% discount rate) on their capital. Good deal for them, likely comparable to credit card rates for businesses, but since it's cash it's more flexible (pay employees, payoff loans, brides, etc).<p>[src]: <a href="https://twitter.com/seobrock/status/669269206584553473" rel="nofollow">https://twitter.com/seobrock/status/669269206584553473</a>
I find the way these programs are presented (Square has a similar offer) to be opaque to the point of dishonesty. How am I able to compare this "interest free" loan with a small business line of credit from the bank?<p>They offer a chart of what repayment looks like, but no "total interest paid" descriptions. I can't help but worry that the way these are designed is more about skirting regulations and confusing borrowers than they are about offering people something genuinely useful.<p>Reminds me a little of cheque cashing shops... Find a group who aren't able to access mainstream financial services (in this case small online sellers) and charge them excessive rates for your "generous" offer.
In case any of you think this is something new, its not. It's called <i>Factoring</i> and its been around since the renaissance:<p><a href="https://en.wikipedia.org/wiki/Factoring_(finance)" rel="nofollow">https://en.wikipedia.org/wiki/Factoring_(finance)</a><p>Of course, when Shopify, Square, and PayPal put their startup-land spin on it and call it "Capital", it sounds cool and new (the fact that they wont use the term says a lot). IMO factoring should only be considered as a last resort of capital or when you have some large/long-term enterprise contracts and need to ramp up production fast (eg Wal-Mart wants 100K of your widgets or the State of CA just ordered $4M worth of software from your 3-person shop). Even then, there are usually other sources of capital with better terms available.
The most details of these products out there is at <a href="https://www.paypal.com/us/webapps/workingcapital/tour" rel="nofollow">https://www.paypal.com/us/webapps/workingcapital/tour</a> under the Pricing tab. As a merchant, you agree ahead of time to a loan amount and a withholding rate, and depending on those parameters and your sales volume, you're given a fixed fee that is tacked onto the loan principal. Repayment then occurs by the lender withholding some amount of the payments that you receive until the principal + fixed fee gets paid back.<p>As a one-time/infrequent shot, it's actually a really nice lending product in that it's not going to cause undue strain on your business if your sales start to flag since the payments go down along with it (and because the total interest you pay is fixed, the implied APR is actually better that way). Where they can become problematic is when a merchant keeps rolling one after another of these since then you're paying a high price for credit and would be better off with a small business credit card or line of credit.<p>Definitely would like to see more transparency with these either way though. When used properly, both the lender and the borrower win, and so I find it odd that lenders try to obscure the details.
Looks very similar to Paypal's offering: <a href="https://www.paypal.com/us/webapps/workingcapital/" rel="nofollow">https://www.paypal.com/us/webapps/workingcapital/</a><p>Beware though. While they pitch it as "no interest, just a fee", the typical effective APR of a PayPal Working Capital loan is between 15 to 30 percent.<p>I suspect this has similarly high fees, since they seem to be hiding the information.
This is a huge thing on Wall Street at the moment.<p>Bloomberg wrote about a couple of guys that started such a business and got bought for (maybe, exact terms not stated) $60 to $100 million.<p><a href="http://www.bloomberg.com/news/features/2015-10-06/how-two-guys-lost-god-and-found-40-million" rel="nofollow">http://www.bloomberg.com/news/features/2015-10-06/how-two-gu...</a>
As someone who has built a lot of saas products off Shopify this makes total sense. Square, Amazon, and PayPal have already gone down this path and proved its highly profitable. I would be curious if Shopify is white labelling a banks offering or if they are making loans a core competency. If the later then its really dangerous for this area is starting to become regulated and is shifting quickly. This risk is one the reasons Square moved away from doing it themselves to actually using third party banking partners to make loans. Also as many of those in the industry already know large loan providers are starting to anticipate a shift in the economy and are moving to invest in collection services rather than sales. If you don't have a competency in making good loans/ collections then you can get in trouble in a down market. That said I do love how companies like Shopify are figuring ways to empower more entrepreneurs to start and grow their businesses. I personally would have though it would have been better for them to open store processing data to qualified third party lenders and provide them an easy way to evaluate, price, and sell loans. This competition would have driven down the price of loans for businesses and Shopify could focus on making great software and just taking a cut off an area that isn't their core focus. Similar model to what has worked for them in other areas outside their core focus (i.e. apps/ theme/ experts market).
merchant cash advances have been around since before the internet. it is an EXTREMELY common marketing tactic in merchant services.<p>so shopify sells merchant services, and uses one of the most common marketing tactics. and they made a fancy landing page.<p>it's a tactic to prey on desperate businesses where they can be taken at the source of their money before it's even put into their account.