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Stripe Capital

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Re: Stripe Capital

#241

Post by heliodor »

pc wrote: post #59
jawns wrote: post #25

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, supp…

[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 s…

Most comments talk about APR and look at this from a personal loan point of view, not understanding the dynamics of a business that make this loan structure well aligned with the business's needs.

Re: Stripe Capital

#242

Post by dylz »

CPLX wrote: post #218
pc wrote: post #59

Earlier quoted context omitted.

[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 s…

I wonder if you’ve considered the perverse incentive you’ve created. It may prove fatal to this model. In short, you’re charging the highest interest rate to those whose businesses do better than you expected and the lowest rate to business who underperform your projections. As such, you’ve created a financial incentive to underperform, and are entering this business of lending money by literally penalizing the least…

Yeah, but at the same time Stripe Capital only lends to people that have history selling on Stripe, and if they're anything like other processors they'll be holding some percent for chargebacks and other stuff anyway, lowering the default risk even if a company decides to take a "loan" and then swap processors overnight as soon as they get the money.

Re: Stripe Capital

#243

Post by jschulenklopper »

GordonS wrote: post #184
juliusmusseau wrote: post #149

Earlier quoted context omitted.

Very neat idea. But I worry that it's vulnerable to bad people. Got a hefty personal bill coming up, and you're pretty confident your SaaS business will be dead within 6 months but Stripe has no way of knowing based on current numbers? Thinking of getting a divorce (startup or marital)... maybe time to grab the largest advance possible before your soon-to-be ex(-co-founder) realises? The problem is that even if only…

I think the up-front fee would discourage this for that particular segment.

I guess the fee is included in the monthly repayments, not charged up-front.

Re: Stripe Capital

#244

Post by sudhirj »

chasedehan wrote: post #190
pc wrote: post #59

Earlier quoted context omitted.

[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 s…

While at first I saw this announcement and applauded (it seems like something Stripe would be great at administering), the structure of these loans is almost exactly the same as a payday loan, even if the APR is dramatically less. What is crazy, is how eerily similar Patrick's response is with the Payday Industry's response about why Payday Loans are good for consumers. >the downside risk of credit obligations they c…

No, payday loans are a different and much more exploitative beast. This seems closer to a shared earnings agreement - Stripe puts in day 10k in exchange for 8% of your daily earnings, with a cap of 12k. If you do well cash out within a week, that’s that. Or your hypothesis was wrong and it takes three years to pay that back, that’s also fine. Your downside is capped at receiving 92% of your income until then, nothing more. No shakedowns, no legal threats, no jail time, no repossession, nothing.

Re: Stripe Capital

#245

Post by sudhirj »

a13n wrote: post #118
pc wrote: post #59

Earlier quoted context omitted.

[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 s…

I think if you can make your model work with a competitive APR then you'll take over the world. At 20% APR I would guess it's just not worth it for the majority of businesses (ourselves included).

It’s a 20% APR only if you’re paying it back really quickly - and if you’re generating so much revenue that you’re going to pay it back quickly why would you need the money at all?

For businesses that expect a slow payback, the APR isn’t nearly that much.

I’d use it to reserve EC2 instances, for example. I get a 40% cost reduction on AWS over 3 years, and I’d expect to take that long to pay back the capital. The APR would be fine in that case, and I make 20% more than I would otherwise.

Re: Stripe Capital

#247

Post by jpalomaki »

CPLX wrote: post #218
pc wrote: post #59

Earlier quoted context omitted.

[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 s…

I wonder if you’ve considered the perverse incentive you’ve created. It may prove fatal to this model. In short, you’re charging the highest interest rate to those whose businesses do better than you expected and the lowest rate to business who underperform your projections. As such, you’ve created a financial incentive to underperform, and are entering this business of lending money by literally penalizing the least…

Stripe has been in business quite a while and I believe their volumes are fairly large. I’d also assume they know quite many details about their customers’ business.

All that gives pretty good dataset for building predictive models that tell how the business will do. These models could be actually better at predicting the future than individual business owner (on large population). Stripe has information about the past performance of many similar businesses while the owner just knows about his.

Also need to remember that business owner is not just optimizing for low APR. He should be still making money through the sales. So hopefully in total there’s still the financial incentive to have as good sales as possible.

Re: Stripe Capital

#248

Post by BukhariH »

davidpolberger wrote: post #160
BukhariH wrote: post #101

Earlier quoted context omitted.

I really love what Stripe are doing here - whilst yes the the APR can be quite considerably higher. That's fair since Stripe are taking on quite a fair bit of additional risk. As the borrower this loan is significantly de-risked since there aren't any dreaded monthly payments you must make. Here's my attempt at a quick interest calculator for Stripe Capitals loans: https://docs.google.com/spreadsheets/d/1RH9PpJ9kdB7X…

I created a version with sliders, making it easier to experiment: https://connect.calcapp.net/?app=atzggn Also, you don't have to duplicate the spreadsheet to make it editable, you can just use it straight away. (Disclaimer: I created it with Calcapp, which is a SaaS product I built.)

That’s a super neat app for excel a junky - bookmarked!

Re: Stripe Capital

#249

Post by sleepychu »

adamqureshi wrote: post #31

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…

So do you actually get 22500 delivered?

Re: Stripe Capital

#250

Post by hobofan »

abalone wrote: post #37
harshadante wrote: post #27

Earlier quoted context omitted.

Harsha from Stripe Capital here. A ton of entities supply capital to businesses today -- it's one of the largest markets in the world. We aren't trying to beat anyone else. We're just responding to the need we heard from Stripe users for a product like this. I think how we do it (in terms of how we model the risk profiles of nascent, capital-light internet business; how we present it to customers; etc.) is all pretty…

This doesn't answer the question. That is exactly what Square Capital does (perhaps PayPal too).

I think it answers the question pretty well. They said it doesn't do anything different, and it was a missing product in their lineup that customers were expecting. Since that product is bundled to your payment processor, if you were with Stripe instead of Square or PayPal you didn't have access to those kinds of loans/cash advances.
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