The way Stripe Capital has structured repayment of the loan -- fixed fee, dynamic loan term -- is is an interesting way to make it hard to compare against other lenders, which typical express their fees through APRs.<p>The term of the loan is variable, and depends on daily sales, but assuming you have a high volume of sales and take out a small loan, the effective APR is going to be through the roof!<p>For instance, suppose I take out a $25K loan with a $2.5K fixed fee. Now 15% of my sales go toward repayment. Let's say I pull in a little over $30K in sales a month. The loan will be repaid in about six months, and my effective APR is 20%! Might as well put it on a credit card!<p>You can get a small business loan at <i>FAR</i> better terms elsewhere: <a href="https://www.valuepenguin.com/average-small-business-loan-interest-rates" rel="nofollow">https://www.valuepenguin.com/average-small-business-loan-int...</a><p>So it seems like the main reason you'd go with Stripe Capital is that they've made the whole process practically effortless.<p>But one thing strikes me as odd about this whole arrangement. The better a business performs, the quicker it is able to repay the loan, and the higher its effective APR becomes! It's essentially a prepayment penalty in disguise. So you'd better make sure the loan doesn't help your business <i>too</i> much, or you'll end up getting hosed by the loan fee.
Here's a twitter thread from John Collison detailing why they launched this. It sounds pretty innovative (not exactly a surprise considering it's Stripe!).<p><a href="https://twitter.com/collision/status/1169660488374001664" rel="nofollow">https://twitter.com/collision/status/1169660488374001664</a><p>> Since 2008, loans made to small businesses have decreased in absolute terms by 41%. Banks have been pulling back from SMB lending.<p>> When businesses <i>can</i> get a bank loan, they spend an average of 25 hours on paperwork and wait weeks or months for approval.<p>> For internet businesses, capital is vital to growth: for marketing spend, inventory, engineering, and much else.<p>> Stripe users report access to capital as one of the top factors affecting their growth.
Stripe offered my 1 man shop a cash advance.<p>$12,500 $1,250 Fixed fee then 10% of sales withheld.<p>$18,500. $1,850 Fixed Fee. 14% of sales withheld.<p>$25,000.00 $2,500 fixed fee. 20% of sales withheld.<p>terms:
No lengthy application: You’re pre-qualified for your advance—no time-consuming application process required.
No hidden fees: We charge one fixed fee for the advance—there are no interest charges or late fees.
Pay when you get paid: Stripe withholds a set percentage of your daily sales until the total amount owed is paid down, so your daily payment adjusts to your performance.
Stripe is really coming after Square. Square Capital is an extremely similar product (prequalifies you & autopays based on your payment volume).<p>Square has a platform / payments SDK but if you look at the Github repo it's a disorganized mess versus Stripe's with virtually no "stars".[1] There's also Stripe Terminal which is a platform-y approach to Square's register/terminal. I wonder how much longer until they go after Square's cash app.<p>[1] <a href="https://github.com/square" rel="nofollow">https://github.com/square</a> <a href="https://github.com/stripe" rel="nofollow">https://github.com/stripe</a>
My company was auto-enrolled in the Stripe Capital beta some weeks/months ago (not sure when). I never accepted the money. Here's what they offered:<p>$12,500 advance; $1,250 fixed fee; 3.8% of sales towards repayment.<p>$18,500 advance; $1,850 fixed fee; 5.6% of sales towards repayment.<p>$25,000 advance; $2,500 fixed fee; 7.6% of sales towards repayment.<p>My company grossed $45,600 MRR this August. I love Stripe and swear by it, but I don't really understand why someone in my position would want this offer. The highest amount represents only about 17 days of revenue.
Klarna, a Swedish competitor in some European markets, has been offering an identical fixed-fee repay-as-you-earn business loan to its customers, and even customers of some other e-commerce firms, for a while now.<p>English press release: <a href="https://www.klarna.com/international/press/klarna-launches-boost-to-supercharge-sme-growth/" rel="nofollow">https://www.klarna.com/international/press/klarna-launches-b...</a><p>Swedish marketing website: <a href="https://www.klarna.com/se/foretag/products/foretagslan/" rel="nofollow">https://www.klarna.com/se/foretag/products/foretagslan/</a> (they claim it's available in the UK on that page, but I can't find a UK marketing page for it?)
I am shocked that nobody has mentioned adverse selection here. Stripe presumably has some sophistication that allows them to predict the probability of future cashflows. They're not going to lend to companies that are going to 'default' with crappy future revenue. They'll just choose to lend to the 'winners.'<p>It's an interesting twist, because this makes the terms relative to a standard loan worse: PC mentioned that customers are asking for downside protection, but under the assumption of adverse selection, it's being extended to those that need it least.
What's most interesting about this is that, reading between the lines, this is effectively an income share agreement for businesses, capped to the loan amount: you pay back a percentage of your revenues until you hit the cap.<p>This could be huge, and Stripe is perfectly positioned to execute on this.
I'm a heavy user of Stripe with 3 businesses >50k MRR and for me charging 10% (even if it's 1 year loan), let alone a >25%+ APR is RIDICULOUS. I'd certainly never use it. I mean this as constructive feedback. I'm actually very disappointed by this ridiculously lousy offer for customers, because that's the opposite of how I've known Stripe: friendly and customer-oriented.<p>Cut your fees by 5X and then you have a product we're talking.
This is like a pay day loan. It's a brilliant move by Stripe to monetize their float/net deposits.<p>I wonder what the effective interest rate will be.<p>Edit:<p>I meant "merchant cash advance"<p>Reminds me of this article:<p>How Two Guys Lost God and Found $40 Million <a href="https://www.bloomberg.com/news/features/2015-10-06/how-two-guys-lost-god-and-found-40-million" rel="nofollow">https://www.bloomberg.com/news/features/2015-10-06/how-two-g...</a>
it's smart because they already have cash flow insights and also control your revenue stream.<p>but i wonder how this nets out in terms of:<p>1. do i want the entity holding my loan to also control my billing/revenue management?<p>2. aren't smb rates much lower than this usually? so crazy that certain usurious rates are just explicitly allowed
This is really great to see. Makes the "should I get a loan for this" question a lot less cumbersome to answer—the repayment via percentage of sales is quite clever.
This is genius. Stripe is uniquely positioned to lower risk because they are in middle of payment flow for a lot of digital companies, and they can lower application requirements.<p>I could easily see lots of businesses taking a little higher interest rate for faster / easier capital and without putting up core business assets: it’s all pledged on future income.<p>It’s a win win, bravo.
I worked in SMB finance for four years. Here's the big players:<p>1) OnDeck (Now a public company)<p>2) Kabbage<p>3) Square (For their own customers only)<p>4) Paypal (For their own customers only)<p>Stripe is obviously following the Square/Paypal model which already own the customer - life is tough for OnDeck and Kabbage since the default rate for standard SMBs is so high and competition is so fierce for them across marketing channels.
So am I understanding this correctly?<p>It is a fixed 10% fee, irrespective of the payment schedule. And then the payment schedule is simply taken as ~12%(increasing as the amount loaned increases) of transactions processed through Stripe until 110% of the loaned amount has been deducted?
How does this compare to Square Capital? IIRC that business has been around for years. Same with Kabbage (SoftBank-backed).<p>Point is, I’m pretty sure SMBs have had a lot of options outside of traditional banks for awhile now.
The FAQ button goes to <a href="https://stripe.com/docs/capital/faqs" rel="nofollow">https://stripe.com/docs/capital/faqs</a> which currently 404s for me.
Wow. This is amazingly innovative and scary. The "flexible" mechanism could unwittingly lead to very high APRs. That they get the money before it gets deposited to your bank account (and used for other expenses or withdrawn prior to bankruptcy) and the application is instant-- wow.<p>In two years or less, Chase and other innovative banks will be hitting Stripe APIs and emulating this. But they will never match the ease exactly and they will never have first dibs on the <i>revenue</i>.
I have a small business. As soon as I hit the 5 year mark, the offers for financing started pouring in. Two entities I deal with a lot for online business purposes (including payment processing) hit me up every week.<p>In other words, Stripe is not the only one playing in this market, and traditional banks are not the only option.<p>The repayment approach is interesting, but will it be enough if Stripes' effective rates are too high compared to the competition?
> Eligibility is determined solely based on your history with Stripe. There’s no lengthy application process, and funds typically arrive the next business day.<p>Oh my. Basing credit decisions solely on revenue, not profit, data.<p>Who's here shorting corporate credit, and how? So far the best idea I could come up with is LEAPS puts on $BKLN.
Based on some of the other comments on this post, this fills a gap in the payments vertical Strip operates in; it's going to be much simpler for their current users to get capital rather than switching payment providers or getting "outside" capital from a traditional lender, credit card, etc.
Looks interesting! Has anyone seen a copy of the agreement yet? I'd be interested to see how they handle things like guarantees / security, and whether or not there's any longstop date at which they would expect you to make a single payment if outstanding amounts remain.
If it is automated this could be amazing. A business is a machine for turning money into more money. Being able to hit the gas on demand is a good thing. Especially for SAAS that needs to do $10k of AWS crunching for a client with good credit not on retainer.
so they know your business better than anyone else, making it painless to approve /deny. They also can keep your loan payment directly (on the source, don't send that part to you) Pretty smart.
I've probably missed something, but for how long does the borrower have to pay 9% of their sales? Is the debt paid in full once $15k (+interest?) is paid back? What is that interest rate?
I have the feeling that this will have the same net effect for startups -- or even more -- that Stripe-as-a-payment-gateway also had. This could be an instant accelerator to self-funding.
Square had similar program called Square Capital. I actually didn't make the last 2 paymenta totaling around $2500 and they stopped emailing me after a while. No collections nothing
Shopify capital is similar. The APR can be high, but then you usually can't get loans on that short term. Also seems to be very popular with shopify.
It does not please me that this announcement comes at a time when Stripe took an unprecedented FIVE DAYS to transfer incoming payments to my bank account.<p>Is this the new ultra-capitalism? Delay my payments so that I am forced to take on loans on unfavourable terms?
What a fucking amazing company. The biggest challenge in making a loan is getting repaid. When you control the vehicle by which your debtor gets paid by their customers, you can easily and frictionlessly take your repayment without having to make calls and send increasingly agitated letters. Genius