
Stripe Capital - jonknee
https://stripe.com/capital
======
jawns
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.

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!

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!

You can get a small business loan at _FAR_ better terms elsewhere:
[https://www.valuepenguin.com/average-small-business-loan-
int...](https://www.valuepenguin.com/average-small-business-loan-interest-
rates)

So it seems like the main reason you'd go with Stripe Capital is that they've
made the whole process practically effortless.

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 _too_ much, or
you'll end up getting hosed by the loan fee.

~~~
pc
[Stripe cofounder.]

> _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 too
> much, or you'll end up getting hosed by the loan fee._

Yes, this is right -- if your business suddenly starts doing a lot better,
your effective APR will be higher.

What we heard overwhelmingly from customers, though, is that the downside risk
of credit obligations they can't meet (liquidity problems are asymmetrically
damaging!) _substantially_ outweighs the theoretical "risk" of a higher
effective APR caused by significant outperformance in the business. (Stated
differently, _we 're_ taking the risk of your business underperforming, in
return for you paying us back somewhat faster -- but still at a capped rate --
if things go better than you expect.)

I think the model we have makes more sense for most businesses. But there's no
dogma; we'll certainly revisit this over time if we find that a lot of
customers seek a different risk profile.

~~~
kryogen1c
Just popping in to say this is one of the most impressive C-level replies i
have ever seen. Straight acknowledgement of the criticism from OP, but
explains the reasoning and demonstrates the benefit to both customer and
stripe. Closes with willingness to change if business model doesnt produce
results matched by test market. Doesnt read as defensive or marketing
buzzwordy, just straightforward and simple.

I hope to one day open some businesses and be cursed with high performance and
pay a penalty to stripe.

~~~
owens99
It’s a solid response. Not sure if it’s worth pointing out but you are totally
fan boying PC and making his response out to be way more than it is.

~~~
meowface
Regardless of the particular response or the company, it's good to see
transparency and lack of bullshit exec speak from C-levels. It might be more
common among tech startups, but plenty of non-tech startup founders do it too.

I wonder if the correlation might be age, since it seems to me that younger
people try to avoid bullshit and seek out authenticity (giving or receiving)
moreso than older generations, which were embedded in more traditional
business models across all industries. (I could be completely wrong about this
being related to age or generation, though; totally guessing. Authenticity
does seem to be a universally growing trend.)

~~~
workaway
I think _most_ executives could post a coherent and informed response online
(with some notable exceptions), but older and more established companies tend
to have layers of lawyers and PR specialists in between the CEO and the
public.

~~~
meowface
True. Some could do it but almost always self-censor or are censored by their
minders, and some truly are full of nothing but hot air. A lot would probably
be capable of it if they actually had total freedom, though I'm not sure if
it's most.

------
jonknee
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!).

[https://twitter.com/collision/status/1169660488374001664](https://twitter.com/collision/status/1169660488374001664)

> Since 2008, loans made to small businesses have decreased in absolute terms
> by 41%. Banks have been pulling back from SMB lending.

> When businesses _can_ get a bank loan, they spend an average of 25 hours on
> paperwork and wait weeks or months for approval.

> For internet businesses, capital is vital to growth: for marketing spend,
> inventory, engineering, and much else.

> Stripe users report access to capital as one of the top factors affecting
> their growth.

~~~
atourgates
Based on the amount of junkmail I get offering my small business loans, I have
a hard time believing the "filling a niche no-one else is offering" narrative.

We get about 2x mailers per week from AMEX alone offering business loans of up
to $500k, not to mention the many other offers we get less frequently.

I like Stripe and think the offer a great product, but I don't think they're
doing this because no-one else will.

Even this specific type of loan, called a "Merchant Chash Advance" \- exists,
and isn't anything new: [https://www.fundera.com/business-loans/merchant-cash-
advance](https://www.fundera.com/business-loans/merchant-cash-advance)

~~~
pc
[Stripe cofounder.]

> _Based on the amount of junkmail I get offering my small business loans, I
> have a hard time believing the "filling a niche no-one else is offering"
> narrative._

Leaving aside questions about how good those lenders actually are to work
with, it's still a surprisingly inefficient market. Businesses built on Stripe
still report that access to capital is one of the _very top_ limiting factors
on their growth. The uptake rates we've seen in the Stripe Capital beta over
the past year corroborate this.

Our hypothesis is that existing lenders are disproportionately ineffective at
detecting and underwriting internet businesses, since they have such different
capital and growth dynamics.

~~~
bduerst
>Our hypothesis is that existing lenders are disproportionately ineffective at
detecting and underwriting internet businesses

Is that because you have a view into your business customers cash flows, so
you think you'll be able to better assess risk than traditional lenders?

~~~
pc
Yes, but much of it is simply taking the problem more seriously. In principle,
others could build this by leveraging bank account data. (Or by using Stripe
Connect.)

We were so struck by the extent of the problem reported by Stripe users, and
by how that remained constant over time, that we decided to go tackle it
directly.

~~~
cm2012
You should research as much as possible about ONDK, the 800lb gorilla in SMB
lending. They're a public company so the data is in their quarterly reports.

------
adamqureshi
Stripe offered my 1 man shop a cash advance.

$12,500 $1,250 Fixed fee then 10% of sales withheld.

$18,500. $1,850 Fixed Fee. 14% of sales withheld.

$25,000.00 $2,500 fixed fee. 20% of sales withheld.

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.

~~~
mNovak
The important question here is what are your average monthly sales? (e.g. what
is the expected term and thus APR of the loan?)

~~~
i_cant_speel
I'm confused on why everyone is focusing on this so much. It matters on
interest-based loans because a higher APR means you are going to pay more in X
amount of time. But here you are paying a flat fee, regardless of the amount
of time it takes to repay.

Why does the APR matter?

~~~
softawre
Because if you have the option of getting the loan through Stripe or a bank
that offers a loan with a regular APR, you may want to compare which is a
"better deal".

~~~
i_cant_speel
Ah that makes sense.

------
abalone
Stripe is really coming after Square. Square Capital is an extremely similar
product (prequalifies you & autopays based on your payment volume).

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.

[1] [https://github.com/square](https://github.com/square)
[https://github.com/stripe](https://github.com/stripe)

~~~
haven
Not to nitpick, but a quick check shows Square has way more stars overall.
(233,343 stars for Square repos and 30,982 stars for Stripe repos.) If you’re
talking about Square’s brand new SDKs, they of course start with zero stars
and some are just weeks old.

~~~
abalone
Wow, looks like Square is updating its github repository in response to this
thread! Just saw they pinned their SDKs. Good job Square, that helps.

Square if you're listening, also work on the docs and dev experience. For
example I noticed that Stripe's docs immediately show you how to work with
charges. Whereas with Square the first step is... setting a location. It's
just another little dev experience hurdle. What if I don't have a location?
What if I'm an online store that spans all my locations? Stripe has put a lot
of attention to detail here. Pinning repos is just the tip of the iceberg.

This is important because developer mindshare matters. For instance it seems
like lots of devs here think this stripe capital product is novel/brilliant, a
testament to wunderkind founders, etc. etc. That's all Stripe doing an A+ job
grabbing and holding developer mindshare. GET ON IT SQUARE.

P.S. I think my characterization about the SDK stars is correct. They have
some other open source projects that are very popular, but their SDK is
trailing way behind Stripe by this measure (even years old repos), by like a
couple orders of magnitude.

~~~
mootrichard
[Square employee, on Developer Relations team]

We are most definitely listening. We appreciate the feedback and are always
looking to improve our developer experience. Stripe has done an excellent job
in that regard.

If you would be open to it, we'd really like to chat with you on your thoughts
about our SDKs & documentation. Feel free to shoot an email to
moot@squareup.com or message our Twitter @SquareDev.

------
Meekro
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:

$12,500 advance; $1,250 fixed fee; 3.8% of sales towards repayment.

$18,500 advance; $1,850 fixed fee; 5.6% of sales towards repayment.

$25,000 advance; $2,500 fixed fee; 7.6% of sales towards repayment.

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.

~~~
penagwin
I think you might be on the "high side" of the businesses they're looking to
support? 25k seems to be the highest they're offering at all.

I'm not really sure what their rates look like for smaller accounts, but I
feel like the target audience is one person startups and such, who have some
income from their hobby (let's say 1k a month) and want to grow to a full-time
job.

~~~
buildawesome
I'm guessing it's because they are trying to maximize a 12 month window. In
lending, the longer the money is out there, the less money you make on it. At
25K, even though they could qualify for more, Stripes assumption is that they
are going to pay it back relatively quickly and be able to lend more after
that period.

------
TazeTSchnitzel
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.

English press release: [https://www.klarna.com/international/press/klarna-
launches-b...](https://www.klarna.com/international/press/klarna-launches-
boost-to-supercharge-sme-growth/)

Swedish marketing website:
[https://www.klarna.com/se/foretag/products/foretagslan/](https://www.klarna.com/se/foretag/products/foretagslan/)
(they claim it's available in the UK on that page, but I can't find a UK
marketing page for it?)

------
tschwimmer
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.'

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.

~~~
buildawesome
Would you lend money to someone who you knew was going to lose you money?
Stripe is a business too.

And offering capital is pretty common among many independent credit card
processors.

------
kentf
Welcome Stripe :) Let’s keep making access to capital better!
([https://clearbanc.com](https://clearbanc.com))
([https://20mintermsheet.com](https://20mintermsheet.com))

------
mmanfrin
I love seeing Stripe announcements primarily because I just love their
frontend design. It's just so dang clean.

------
edouard-harris
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.

This could be huge, and Stripe is perfectly positioned to execute on this.

~~~
Liron
It's only ISA-like for businesses whose low-profit times are their low-revenue
times, like seasonal businesses. But often businesses have a relatively steady
stream of revenue and fluctuating/unpredictable net profit/loss (especially if
they're dealing with non-software margins), and this model isn't much of a
downside-risk-reducer for them.

~~~
edouard-harris
That's absolutely correct, though financial technology of this type can also
make it easier to start a seasonal business by effectively evening out its
cashflows. This won't be hugely impactful for B2B SaaS companies, but it might
be a game changer for e-scooters and vacation rental companies, for example -
and thereby expand the market for seasonal companies.

------
countryqt30
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.

Cut your fees by 5X and then you have a product we're talking.

~~~
1123581321
Do you actually need to finance your business? It just sounds like you don’t
value access to cash. This is an alternative to traditional small business
lending and receivables factoring.

------
anonu
This is like a pay day loan. It's a brilliant move by Stripe to monetize their
float/net deposits.

I wonder what the effective interest rate will be.

Edit:

I meant "merchant cash advance"

Reminds me of this article:

How Two Guys Lost God and Found $40 Million
[https://www.bloomberg.com/news/features/2015-10-06/how-
two-g...](https://www.bloomberg.com/news/features/2015-10-06/how-two-guys-
lost-god-and-found-40-million)

------
aznpwnzor
it's smart because they already have cash flow insights and also control your
revenue stream.

but i wonder how this nets out in terms of:

1\. do i want the entity holding my loan to also control my billing/revenue
management?

2\. aren't smb rates much lower than this usually? so crazy that certain
usurious rates are just explicitly allowed

~~~
harshadante
Harsha from the Stripe Capital team here. Access to capital has been one of
our top user asks, and users were excited about the possibility of Stripe
leveraging our knowledge of their business to offer them an integrated
solution for their capital needs.

As for pricing, the cost of the loan is a single fixed fee that adjusts to the
loan amount, and it is paid over the course of the loan—there is no interest
rate or additional fees. The effective APR is dependent on how long it takes
to repay the loan. We’re priced very favorably compared to alternative
lenders.

------
rglover
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.

------
xivzgrev
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.

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.

It’s a win win, bravo.

------
cm2012
I worked in SMB finance for four years. Here's the big players:

1) OnDeck (Now a public company)

2) Kabbage

3) Square (For their own customers only)

4) Paypal (For their own customers only)

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.

~~~
mrnobody_67
Afterpay and Klara are interesting as well... point of sale.

Smile Club rolls their own (65% of customers finance their purchase according
to S-1).

------
ralusek
So am I understanding this correctly?

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?

~~~
harshadante
Harsha from the Stripe Capital team here. The loan amounts, repayment rates,
and fees shown on the landing page are just used as examples. That being said,
the example you walked through is correct: for a loan with a 10% fee and a 12%
repayment rate, Stripe will deduct 12% of your Stripe sales until 110% of the
loan amount has been repaid.

------
tempsy
How does this compare to Square Capital? IIRC that business has been around
for years. Same with Kabbage (SoftBank-backed).

Point is, I’m pretty sure SMBs have had a lot of options outside of
traditional banks for awhile now.

------
Veelox
The FAQ button goes to
[https://stripe.com/docs/capital/faqs](https://stripe.com/docs/capital/faqs)
which currently 404s for me.

~~~
edwinwee
It's up now! (Sorry about that.)

~~~
Veelox
It's all good. Just wanted you to know and fixed it before to many other
people saw the 404.

------
perspective1
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.

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 _revenue_.

------
ilamont
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.

In other words, Stripe is not the only one playing in this market, and
traditional banks are not the only option.

The repayment approach is interesting, but will it be enough if Stripes'
effective rates are too high compared to the competition?

------
H8crilA
> Eligibility is determined solely based on your history with Stripe. There’s
> no lengthy application process, and funds typically arrive the next business
> day.

Oh my. Basing credit decisions solely on revenue, not profit, data.

Who's here shorting corporate credit, and how? So far the best idea I could
come up with is LEAPS puts on $BKLN.

------
thecosas
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.

------
coopeteer
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.

------
crb002
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.

------
onetimemanytime
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.

------
ericjang
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?

~~~
frakkingcylons
There is no interest, you just have to pay back the fixed fee.

~~~
harshadante
Hi there, this is Harsha from the Stripe Capital team. You are correct that
the repayment rate (9% in this example) will stop once the loan amount and the
fixed fee has been repaid. There are no interest charges or additional fees.

------
mark242
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.

~~~
bob_theslob646
The thing about taking money in the form of debt is if the company gets into
trouble, debt holders are the first to get paid and or get a stake in the
company. That is why it can be dangerous for startups to take on debt.

------
YeahSureWhyNot
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

~~~
johnestar
lol what so you got $2500 for free?

------
fblp
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.

------
stephen82
My country (Cyprus) is not yet supported by Stripe. Is Stripe Capital
restricted to countries that are not yet supported? How does this work?

~~~
edwinwee
It’s only available for businesses that use Stripe in the US (for now). After
we look at their histories with Stripe, we send personalized offers to
businesses that we think could benefit from Capital.

We do want to be available for businesses in Cyprus (Stripe itself and
Capital), but we don't have a timeline yet. You can sign up for updates at
[https://stripe.com/global#CY](https://stripe.com/global#CY)!

~~~
stephen82
Thank you very much.

------
NoblePublius
I know several people in the merchant cash advance business and I wouldn’t
trust any of them. This is the lowest rung of finance.

------
marclave
Wow, super cool and they also allow you to provide Stripe Capital through
connect to your customers!? Insane.

------
cavisne
When will they launch Stripe Acquisition - automated acquisition offers based
on revenue streams

------
louisknows
Does Stripe offer (or will soon offer) a similar loan program for EU based
businesses?

~~~
harshadante
Just in the US right now. We know the need for capital is global, and we’re
working to expand this to EU businesses soon! However, we don’t have a
specific timeline at the moment.

------
novaleaf
I feel that that this is the startup equivalent of racking up credit card
debit.

------
ejz
The guys at Square are probably looking over their shoulders right now...

------
noahmakes
Always been impressed with Stripe's commitment to users

------
rajacombinator
Stripe’s payments platform is missing some pretty basic functionality that
they should probably focus on before pursuing these side project ventures.

~~~
edwinwee
What do you think is missing?

Would love to chat more to see if we can fix that. :) edwin@stripe.com

~~~
ztratar
I work at Stripe, too. Please do chat with Edwin!

We are building new functionality daily. To achieve global reach for our
features, there is still a lot of work to be done. This isn't a place like
some of the big tech companies where some folks are working on low-value-add
projects.

If you want to help build Stripe, too, come apply!
[https://stripe.com/jobs](https://stripe.com/jobs)

------
ThomPete
So its basically like Square Capital.

------
bob_theslob646
So will stripe be considered a bank?

------
tnolet
When is this launching in the EU?

~~~
countryqt30
In the EU you can get credit for 1% and less at any German/UK/French/... bank.
Do you really want to pay 10-30% instead at Stripe?

~~~
hobofan
Banks don't offer a suitable alternative. As a SMB, applying for a loan takes
ages in comes with a boatload of paperwork. Same as in the US, where you can
probably also can get better terms with a traditional bank.

------
antoinevg
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.

Is this the new ultra-capitalism? Delay my payments so that I am forced to
take on loans on unfavourable terms?

~~~
edwinwee
Ah, sorry. We tried giving you a call earlier. It was a holiday weekend in the
US (Labor Day was Monday), and most banks don't process transfers then. It
takes 2 business days to send a payout, but these three holiday days pushed it
out. If you've any more issues you can email me at edwin@stripe.com.

------
paggle
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

~~~
asdf21
Not legally, they would still need to have a legal order for garnishment, I
assume.

~~~
nroach
Garnishment is against accounts held by a third party. If the right to
withhold or draw from already-authorized sources is part of their contract on
either the payments or lending side (and I can't imagine it wouldn't be), no
garnishment should be needed as they're in direct contractual privity.

