Stripe Gets Into Merchant Cash Advances With Stripe Capital

The big online merchant processor Stripe Inc. on Thursday introduced Stripe Capital for its U.S. merchants, thus joining competitors such as Square Inc. and PayPal Holdings Inc. in providing financing for its merchants.

“Stripe Capital makes it easy for Internet businesses to get the funds they need, when they need them,” Will Gaybrick, San Francisco-based Stripe’s chief product officer, said in a news release. “It’s important to think about financial inclusion not just in terms of consumers, but also in terms of businesses. Businesses, especially small businesses and startups, are the engines for job creation in our economy. It should be trivially simple and lightning fast for them to access the capital they need to smooth their cash flow and invest in their own growth.”

Stripe also said it will extend Stripe Capital to its platform partners such as online store builders and software-as-a-service companies, enabling them to offer financing to their own business customers.

A spokesperson tells Digital Transactions News the new service does not affect Stripe’s existing fixed-rate lending service for its merchants through London-based Funding Circle. That service provides loans of up to $500,000. Advances with the new service are expected to be mostly in the $5,000 to $25,000 range.

Stripe itself will facilitate access to the financing and handle Stripe Capital servicing and collections on behalf of its bank partner. That bank, which Stripe refused to name, provides the merchant funding.

Merchants apply for Stripe Capital through their online Stripe dashboard. Stripe makes a credit decision based on the merchant’s payment volume and history with the processor. The company says financing will not affect the applicant’s credit rating because Stripe will not check credit reports. Approved applicants will get three financing offers, and funding becomes available the next business day after approval.

Stripe refers to the financing as a merchant cash advance in which the merchant technically sells Stripe a portion of its future sales. The advances charge a 10% fixed fee, according to three examples posted on Stripe’s Web site. Stripe takes a fixed percentage of daily sales—in the examples, they vary from 9% to 15%—and applies them toward repayment until the advance is repaid.

With the new service, Stripe is taking advantage of the unique data it has about its merchants—something its competitors such as Square and PayPal have already done with their own merchant-financing services, notes Richard K. Crone, chief executive of San Carlos, Calif.-based Crone Consulting LLC. “Stripe has been literally leaving money on the table, because only they can provide this,” Crone tells Digital Transactions News. “Only Stripe can do this for Stripe customers.”

The spokesperson says Stripe serves millions of merchants globally, but declined to give an exact number.