Businesses are always in need of working capital. Now, we need it more than ever. So, I wracked my brain for one of the best solutions I know of (that we haven’t written about previously) that would be especially helpful for businesses in the current economy. And, the first resource that came to mind was Stripe Capital.
I’m seeing a lot of business owners who were working on their personal credit to get ready for new financing to grow their companies before the COVID-19 pandemic disrupted commerce in ways we never saw coming. And, the reason this option was at the front of my mind is that the company doesn’t require a personal guarantee, which is rare. So, what does this mean for you?
When you accept an offer for a Stripe Capital loan, the company will not make a decision based on your personal or business credit. Instead, capital offers are based on transaction volume and history of payments processed through your Stripe account. So, if you are a current user, this could be just the solution you need to keep your doors open through a dilemma.
So, let’s take a look at whether or not this is the right solution for you:
- Will you qualify based on Stripe Capital requirements?
- What are the typical repayment terms?
- Are there other details you need to know before you accept an offer?
If this information could be helpful at this difficult time, keep reading.
First, What is Stripe Capital?
For those of you who aren’t familiar with Stripe Capital, it is a business financing service that Stripe, known for its payment processing solution, offers to its existing users. The company gives customers next-day access to funds for daily operations based on their transactions. Think of it as “Stripe working capital.”
Like many other working capital services, the funds can be used to purchase new equipment, pay employees, or any other activity that will help you maintain or grow your business. Yet, the program varies in several ways from other comparable services. To learn more, keep reading.
How much working capital can you get from Stripe?
The company website advertises loans in the amount of $15K, $20K, and $25K. But, you are not necessarily limited to a single loan. Some customers with existing loans will have the option to apply for another loan after making payments toward the original funding amount. And, you can pay off your loan at any time.
Since Stripe’s fees are fixed based on the size of the loan taken, you would receive no cost hardship or benefit (i.e. lower interest payments) from paying early. And, this could potentially open you up to a new financing offer from Stripe sooner than if you were to pay the funds back as agreed.
Does Stripe report on-time payments to credit bureaus?
Stripe does not require a credit check for funding approval. The capital program seems to have no relationship with D&B or any of the personal or business credit bureaus. So, this type of financing will not help you boost your credit score. Merchant cash advance companies are not required to report to credit bureaus.
Note: If you need to build credit, it may be better to start with Net30 vendors that report to credit bureaus. However, you won’t have the freedom to use the funds outside the companies that finance your purchases.
See also: Stripe Corporate Card Review
And, What’s Required to Qualify for Stripe Capital?
Stripe Capital requirements are still in the evolution stage. As of right now, funding is offered to select merchants. Yet, this is expected to change.
As of today, if you have not received an email from Stripe or a notification in your dashboard that invites you to accept an offer for funding, you may not qualify. However, you can let the company know that you are interested in the program. Even if you’re not sure you will accept when the time comes, now might be a good time to get your name added to the list. Visit https://dashboard.stripe.com/capital to register your interest.
The system is powered by a machine-learning API that looks for certain eligibility criteria. These criteria include sales volume and transaction history. And, this works with low credit barriers because of the repayment structure.
So, What Are the Repayment Terms for Stripe Capital?
Repayment for Stripe Capital doesn’t look like what you’re probably used to if you’re only familiar with loans and credit cards. Actually, payments are set up more like a merchant cash advance (MCA). Instead of paying a set amount each billing cycle, your loan is paid back daily from a percentage of your online sales.
So, one day, you may make a payment over $1K, the next day, if you have no sales, you don’t make a payment. Smaller loans will have a smaller daily percentage take out than larger loans. These numbers might range from 9% to 15% of daily transactions. And, when you don’t make a payment, there will be no penalty. This is a super convenient repayment option for anyone.
How Much Will You Pay?
Obviously, no financial service comes without a cost, so here’s the catch. You will pay a set fee on top of the amount of your loan. While the fee will vary, here’s what you can expect.
The set fee that you will pay for your loan might be around 10%, according to the current advertising. So, a $15K Stripe cash advance might cost about $1,500. Does this stack up to the existing competition? Take a look for yourself.
|MCA Company||Advance Fee||Fees for $15K Loan||Fees for $30K Loan|
|CanCapital||3% + $595||$1,045||$1,495|
As you can see from the table, each MCA provider has varying fees. And, their repayment terms can range from 5-20% of daily transactions. Slow repayment with a company offering a variable rate can cost a lot in the long run.
What is Stripe Capital?
Stripe Capital is a unique merchant cash advance offered to select existing Stripe customers. They offer next-day access to funds that can be repaid as a percentage of daily operations.
Does Stripe Do a Credit Check?
For Stripe Capital, no. Stripe does not do a credit check. Instead, offers are extended to high-volume transactions that take place via the platform.
Does Stripe Offer Financing?
Yes, Stripe offers financing to existing users based on transaction history. Stripe Capital and Stripe Corporate Card are two options.
Even before the pandemic hit, it was crucial to keep enough capital on-hand to power your operations. And, if you’ve been affected by the situation, you know why. If you are a high-volume seller and existing business customer, Stripe Capital may have just what you need to move forward and keep your doors open or even scale your business as you planned. If you’re not sure what the next step is for you financially, don’t hesitate to reach out to Business Credit Workshop.