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Comment by jonknee | Hacker News Reader

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

> 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.

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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

Have you actually tried to qualify though?

From my experience as a consumer and business borrower, it's very easy to borrow money at a crummy interest rate. ZIRP comes no where close to permeating SMB.

This does seem to be exactly like PayPal Working Capital, down to the application and fee structure.

I'm guessing that what Stripe is really bringing to the table here, is what they so often do: considerable simplification of annoying, often slow, red-tape-heavy processes.

Their entire existence has been built on that. They look for the burr in the saddle. If PayPal had not been so incompetent with their API, Stripe probably wouldn't have had enough of an angle in the beginning to gain broad traction among developers.

I agree they simplified payments, but I don't see how they improved this product over PayPal. Both decide almost instantly and don't require a bunch of documentation.

Probably hard to improve on that process, but it does look like they are just playing catch up in this small area of their business.

Well, I for one, given PayPal's notoriety, wouldn't touch their offering with a barge pole.

Stripe has a lot of goodwill - that goes a long way.

Shopify, Amazon, Paypal, Alibaba all have similar concepts.

> 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.

if you tried applying for one you would retract that statement and just upvote OP.

silly unexperienced reply

[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.

>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?

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.

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.

Which is exactly why Square got into it as well: https://squareup.com/us/en/capital

Dude, outside of the SV bubble access to capital is always the top for any small business that believes in themselves. Did you "discover" labor is the second biggest?

They are replying to another comment who had questioned the need for yet another loan service. It's fair to point out the persistent problem of access to capital, even if it's obvious to many.

I have taken over a small business (expect to do ~$1.2-1.5m revenue this yr). Getting any sort of credit as a backstop is really really hard. Especially when you need it. This doesn't seem too different in terms of biz model and fees to something like Fundbox (which hooks into your Quickbooks account). Business interest rates tend to be significantly higher than personal rates (my parents have run a business for 20 years, and the interest rates for their commercial business mortgage is 2x the mortgage on their house)

Peter Thiel made an interesting point RE: one structural problem in the US economy being that lenders are giving consumers too much credit, but small businesses not enough.

Innovative? Do a quick google search for POS Lending ;). This is a standard offering for most financial institutions that do merchant acquiring. But I'm sure Stripe will greatly improve the experience.

Yes, a greatly improved experience is exactly Stripe's MO. That is innovative in my book.

QuickBooks, PayPal, and Amazon all offer effectively the same product. Being the fourth (at least, I may be missing some) major player in a market doing the same thing as everyone else isn't innovative.

Square and PayPal both have similar offerings, which piece here do you feel is innovative?

(disclosure: I work at Square, but not on Capital.)

No application and approval process?

(disclosure: I work at Square but not on Capital)

Square Capital takes only a few clicks to sign up, and loan offers automatically show up if you're already eligible [1], so this part of the offering is quite similar.

https://squareup.com/us/en/capital

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 neat. But the innovation, if we succeed, isn't going to be in how the mechanics compare to other products. It's going to be in not hearing from Stripe businesses that access to capital is one of their biggest limiting factors.

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

Stripe has exactly what Square and PayPal and many other offer. Similar rates, process, terms, etc - no outsized compelling reason for one over the other (similar to CC rates)

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.

They edited their comment to a completely different answer, without noting so. The original was just a marketing blurb.

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