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> "Merchant cash advances do not have an interest rate. Instead, Shopify will purchase a set amount of your future receivables at a discount." 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].…
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? 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 borrowe…
How am I able to compare this "interest free" loan with a small business line of credit from the bank? If you're able to get a small business line of credit from your bank, take that, it will invariably be superior. Sadly, that product has virtually disappeared from the marketplace for small businesses with revenue less than ~$1 million. The underwriting costs are too high, the product is too risky, and the revenue p…
Earlier quoted context omitted.
How am I able to compare this "interest free" loan with a small business line of credit from the bank? If you're able to get a small business line of credit from your bank, take that, it will invariably be superior. Sadly, that product has virtually disappeared from the marketplace for small businesses with revenue less than ~$1 million. The underwriting costs are too high, the product is too risky, and the revenue p…
Sample size of one, but I have friends who run a small shop doing trade work (earning far less than 1m/year) and they were able to fairly easily get access to 10-20k of loans with interest rates in the <10% ball park (don't know exact numbers, also not mine to share). So to hear that kind of loan has "virtually disappeared" is surprising.
> "Merchant cash advances do not have an interest rate. Instead, Shopify will purchase a set amount of your future receivables at a discount." 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].…
How is this functionally different from a loan? It appears to be identical.
https://en.wikipedia.org/wiki/Factoring_(finance)
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.
Earlier quoted context omitted.
How is this functionally different from a loan? It appears to be identical.
Instant approval with no docs but much worse hidden rates
> "Merchant cash advances do not have an interest rate. Instead, Shopify will purchase a set amount of your future receivables at a discount." 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].…
How is this functionally different from a loan? It appears to be identical.
Shopify is betting that they can predict when you'll pay it back, then set a discount that makes them more money than time-based interest. If they lose, they still get their money back eventually, and if they win, hey, that means you grew faster than expected, which is great for everybody.
Earlier quoted context omitted.
Sample size of one, but I have friends who run a small shop doing trade work (earning far less than 1m/year) and they were able to fairly easily get access to 10-20k of loans with interest rates in the <10% ball park (don't know exact numbers, also not mine to share). So to hear that kind of loan has "virtually disappeared" is surprising.
Frequently those 10% loans are for, say, 6 month payback periods so the effective APR is over 20%.
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.
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.
In case any of you think this is something new, its not. It's called Factoring and its been around since the renaissance: https://en.wikipedia.org/wiki/Factoring_(finance) 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 wh…