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Comment by jawns | Hacker News Reader

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, suppose I take out a $25K loan with a $2.5K fixed fee. Now 15% of my sales go toward repayment. Let's say I pull in a little over $30K in sales a month. The loan will be repaid in about six months, and my effective APR is 20%! Might as well put it on a credit card!

You can get a small business loan at FAR better terms elsewhere: https://www.valuepenguin.com/average-small-business-loan-int...

So it seems like the main reason you'd go with Stripe Capital is that they've made the whole process practically effortless.

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.

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[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 starts doing a lot better, your effective APR will be higher.

What we heard overwhelmingly from customers, though, is that the downside risk of credit obligations they can't meet (liquidity problems are asymmetrically damaging!) substantially outweighs the theoretical "risk" of a higher effective APR caused by significant outperformance in the business. (Stated differently, we're taking the risk of your business underperforming, in return for you paying us back somewhat faster -- but still at a capped rate -- if things go better than you expect.)

I think the model we have makes more sense for most businesses. But there's no dogma; we'll certainly revisit this over time if we find that a lot of customers seek a different risk profile.

This is such a great response...different customers have different needs, and sometimes covering downside matters more than optimizing interest rate in the best-case scenario.

In this case, then surely showing a calculator straight on the page allowing people to see what APR they would get based on their payment/sales configuration would make the whole process more transparent and easier to understand by people who might not be savvy enough to understand the nuances then?

I have worked in the small business lending space before. Stripe cannot price in terms of APR because legally, it is not a "loan". It's a purchase of future receivables. If it was a loan, the APR would be considered usurious in most states.

In most states aren't loans for commercial purposes (or to certain kinds of entities [c-corps, llcs, partnerships] assumed to be commercial) are exempted from usury restrictions?

> legally, it is not a "loan". It's a purchase of future receivables.

Interesting. From this perspective, Stripe is actually getting into the factoring business: https://en.wikipedia.org/wiki/Factoring_(finance)

As @pc has been active here, I'd love to hear from him on this - in legal terms, according to your lawyers, is Stripe Capital considered a loan?

I'm definitely not a lawyer, but I work at Stripe. Capital works a bit differently. Yes, we offer loans, but we also offer cash advances (with a focus on loans right now). They're pretty similar—repayment via your sales, fast funding, a fixed fee with no interest, and a streamlined application, to name a few things. When we make an offer, we’ll make clear if it’s actually a loan or cash advance (and what that means for your business).

Yeah, we've iterated a lot (and done a lot of customer interviews) to try to figure how to make the presentation as simple-to-understand as possible. It's hard to show a (de facto) APR precisely because it will depend on your subsequent sales. (And showing it could even be confusing because there's no compounding with our fee structure.) All that said, one of the key questions we care about when speaking with customers, prospective and current, is "Are the terms clear?". And if coming up with some kind of APR-equivalent modeling thing helps achieve that, we'll do it!

The issue is comparison, a lot of customers are going to have to build their own spreadsheets to try and compare the terms with alternatives. What you have is basically the industry standard for this form of capital, but definitely an opportunity to do better with transparency.

Provide a tool that show's the loan repayment based on historical data e.g. a scenario.

Let me go back 12 months, pretend I took a loan of $X amount at Y date and simulate the repayment based on a customers actual historical data.

Why is everyone using the term APR? It's not compound interest. If I take 2 or 3 or 5 years to pay back, I don't get charged more. The cost of the loan is fixed at 10% of the principal, regardless of how long you take to pay it back. There's no compounding, so using the term APR makes it sound nefarious when it isn't.

Totally off-topic, but thanks for Stripe. It's a game-changer and has made my life as a developer so much easier.

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/1RH9PpJ9kdB7X4xcZvqb7...

You didn't include the fee in the payback, and you are confusing monthly with annual interest rates

Is the fee not charged upfront - that's why I excluded it from the payback period.

Ahh you caught the mistake with the interest periods! Thanks!

>Is the fee not charged upfront

How does that make any sense?

It's pretty common to have a fee for a loan that's paid upfront like an arrangement fee.

But you're probably right in this case - Stripe likely include their fee in the monthly payments - updated the sheet.

Appreciate the feedback!

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.)

Perhaps add a <noscript> tag to your calculator - otherwise it is just a blank page with JavaScript disabled!

There is actually a <noscript> element, but it isn't showing because the CSS opacity of the <body> element is set to 0. That's a fairly recent change which inadvertently broke the <noscript> text. We'll need to look into what we can do to fix it.

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

Glad you like it. If you or anyone else need a calculator to share on Hacker News, let me know and I'll make sure it can be launched an unlimited number of times for free. (Otherwise, you'll quickly bump into the limits of our free plan.)

Cool experiment.

I don't agree with how you say that 10% is the Quoted Interest Rate, because Stripe isn't doing that. They are saying they have a fixed fee. "Interest rate" means it compounds.

If the HN hive mind can agree on better terminology, I'd be happy to update the calculator.

I would say something like "Loan fee as a percent of amount lent" or (if you wanted to keep it consistent) "Fixed fee as a percent of Principal"

What's stopping a business from getting a loan and then transferring the funds - and directing part/most of their future receivables - to another entity, in order to drag out the loan term?

Commercial credit markets are incredibly tight, which is the biggest thing for loans under 25k.

There's a minimum amount due.

A minimum payment would set a floor on the effective interest Stripe earns, but still doesn't seem to solve adverse selection entirely if they are expecting the average payment to be much higher.

Is there any expectation or obligation that all proceeds of the business are handled by Stripe?

I mean, if you have several payment methods on your website, one resource to improve your APR could be to make more promiment other payment methods for the duration of the loan.

Probably they're assuming a business which is profitable enough for them to extend credit isn't going to mess around too much with how they conduct said business, in order to save a few hundred dollars

Just popping in to say this is one of the most impressive C-level replies i have ever seen. Straight acknowledgement of the criticism from OP, but explains the reasoning and demonstrates the benefit to both customer and stripe. Closes with willingness to change if business model doesnt produce results matched by test market. Doesnt read as defensive or marketing buzzwordy, just straightforward and simple.

I hope to one day open some businesses and be cursed with high performance and pay a penalty to stripe.

It’s a solid response. Not sure if it’s worth pointing out but you are totally fan boying PC and making his response out to be way more than it is.

Regardless of the particular response or the company, it's good to see transparency and lack of bullshit exec speak from C-levels. It might be more common among tech startups, but plenty of non-tech startup founders do it too.

I wonder if the correlation might be age, since it seems to me that younger people try to avoid bullshit and seek out authenticity (giving or receiving) moreso than older generations, which were embedded in more traditional business models across all industries. (I could be completely wrong about this being related to age or generation, though; totally guessing. Authenticity does seem to be a universally growing trend.)

I think most executives could post a coherent and informed response online (with some notable exceptions), but older and more established companies tend to have layers of lawyers and PR specialists in between the CEO and the public.

True. Some could do it but almost always self-censor or are censored by their minders, and some truly are full of nothing but hot air. A lot would probably be capable of it if they actually had total freedom, though I'm not sure if it's most.

Not sure it's worth pointing out but I don't think there was any value in pointing that out.

I thought the comment was apt.

HN most likely represents a core demographic for the product.

Isn't that pretty common on HN? I've read similarly great comments from sytse (gitlab), eastdakota (cloudflare) and a bunch more I can't drum up right now.

It's certainly a lot more common on HN than other forums but that doesn't mean it's not worthwhile pointing out when it happens. Positive feedback from readers is great.

Good point!

The good response is rooted in good planning. They're not out to scam you.

It would a nice benefit if you could discount the credit card processing fees during the repayment period.

E.g. You charge a 10% upfront fee for the loan, and repay at a 10% rate, from the perspective of the company they’re actually paying 12.9% to Stripe during repayment.

If you could pay just the 10% or even if you just got a .5% reduction to 12.4% overall going to Stripe during the repayment period, it becomes more of a win-win and a nice customer loyalty type bonus.

Interesting idea!

That's far more compelling. If a % of the ~$15k+ we give stripe annually (via cc processing fees) went towards loan repayment, we'd likely have perpetual loans open :)

Ah, now this is a great idea!

Stripe reduce their margin slightly on payments - but it makes for a much more compelling sell to potential borrowers.

Problem is that usually 0.5% or 50 basis points is the markup on the fee, so effectively, the processor wouldn't make money on transactions, but would only make money on complete repayment. This is a loss to the business if it takes longer for the merchant to pay back the working capital loan.

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.

> I’d use it to reserve EC2 instances, for example.

That's a great idea!

I have two questions for you, so I figured I piggy back off this comment.

* What does the entry level look like? This appears to be a decent way to launch a hobby into a business, but what is the income you're looking for? Does my app need to gross 1k/mo before it's an option?

* What are the term limits? Or what if the app is shutdown, or underperforms?

This appears to be a good way for people to launch hobby projects into full businesses, I was just wondering if that was indeed the case.

We underwrite our loans based on factors that include your payment volume and history on Stripe. There’s no strict cutoff on how much sales you need to be eligible, but for now we require some payment history with us before we can qualify you for a loan. Eventually, we hope to be able to offer capital to virtually every business on Stripe—even those just getting off the ground!

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 1% of Stripe's customers might match these kinds of profiles, that same 1% might be taking 20% of the Stripe Capital advances.

>>"But I worry that it's vulnerable to bad people."

You worry too much for them, that's why they charge a hefty interest fee. A certain % of non-payments or partial payments are built in.

They probably have some data science and a decent fraud model to keep risk within an acceptable band too.

either way it's a business move, they either win or loose. If they get screwed, they'll end it and take a loss. Part of business, they're not doing it as charity.

> Stripe

> Decent fraud model

Yeah, I would think so.

I'm not an expert on small business loans, but I would guess that incentives take care of most of this problem. The higher the loan you have, the more cash your business must have been generating in the first place, therefore the higher incentive you have to figure out how to keep it running. There probably aren't too many scenarios where you are both eligible for a material loan from Stripe and yet not highly enough incentivized to figure out how to make the business work to the best of your abilities.

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.

Oh, then I misunderstood that.

Purely out of curiosity - and you may not be able to, or may not want to answer - but how does a company like Stripe structure this sort of business? Are you making loans right out of your working capital, or do you have separate debt obligations of your own to cover these, or something else? I would imagine this sort of thing is regulated somehow, but I don’t really know... would love to hear whatever you can share!

Surprisingly, this is a totally unregulated industry on the federal level. Legally, they aren't loans; it's a purchase of future receivables. Google "merchant cash advance regulation" and have your mind blown.

California has light regulation in the form of disclosures similar to those for consumer credit. CA is also the only state that requires any licensing but the license is for the company, not for any of the brokers, and is super easy to obtain.

We’re working with banking partners to originate the loans. We’ll fund some of these loans ourselves, and we’ll also work with investors to help us extend even more capital.

Quick question - does this model expand to multi million dollar advances, assuming the cash flow warrants it?

You are 100% correct in that. Whenever I consider this type of capital loan for my small business (physical products) the order of operations is always "Am I going to run out of cash or inventory if I don't use this?" before looking at how good the borrowing rate is. If I overpay on the APR, it's probably a good problem; if I don't sell through, then the bank is suffering with me (as you noted).

SBA loans have better rates, but require more work. I particularly like the American Express model, where they extend credit to pay a merchant invoice directly. You repay the credit in 30/60/90 days and you pay 12% (which used to be 9%).

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 can't meet ... substantially outweighs the theoretical "risk" of a higher effective APR.

"The $15 cost of a $100 payday loan also pales in comparison with the lost income when a car is out of commission and a job lost. Good payday lenders clearly disclose their loan terms and conditions, including the dollar amount of any fees and the APR."[1] Payday loans are clearly bad for the consumer, even as much as the industry tries to defend it.

[1]https://www.americanbanker.com/opinion/why-payday-loans-are-...

One would assume that there is a difference between what is a "predatory" offering to irrational individuals, and what is a "predatory" offering to mostly-rational corporations. For the same reason that individuals gambling is considered not-so-sensible, but corporations holding liquidity in the form of investments isn't so much; or the same reason that individuals purchasing on a lease are usually being screwed, while corporations leasing e.g. equipment aren't. Unlike people, businesses don't tend to take these deals if they're sub-optimal for them. If they're taking them, they are usually the best solution, even after all the NPV calculations.

This is so wrong. A payday loan is due on your next payday, no matter what. This loan flexes the term based on ability to pay.

The better analogy would be a fixed-cost loan with variable installments based on your income- a much, much friendlier loan structure for consumers.

What makes payday loans unaffordable is their structure, more than their cost. In California, a typical payday loan goes like this:

1- You write me a $300 check and date it for two weeks from now (when you get paid)

2- I give you $250 in cash

3- Two weeks later, I cash the check

If you had to borrow $250, what are the chances that you have $300 left over on your next paycheck? Zero. So really, it's:

3^- You come back to the store and say "don't cash that check, I'll get hit with a $25 overdraft fee."

4- I say "ok, give me $50 and I'll move your due date back 2 weeks."

5- You say "phew, thank goodness!"

6- Two weeks later, goto 3*

So the one-time payment is what makes it horrible. Even if they charged 0% APR and all you had due was $250, you'd still be hosed. An installment loan, though, where you pay $50 every two weeks for N months is clearly better, as proven by step 4 here.

> the structure of these loans is almost exactly the same as a payday loan, even if the APR is dramatically less.

I don’t think this is the case. Payday loans compound interest, don’t they? You end up owing more money the longer you take to pay them off. With this, you only ever have to pay back the advance and fixed fee no matter how long it takes.

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.

While all true statements, anyone who has been anywhere near [brandname] Captial products know the reason why you are offering this structure is to get around lending laws.

Just be honest, you don't want to deal with the regulatory issues that surround offering a fair compounded interest rate.

Why the fixed fee in the first place?

You could charge a flat interest rate but require the customer to pay you back a minimum of x% of their stripe volume per month.

Allow the customer to pay a higher percent of volume if they choose, and reward them for paying you back by lowering the effective rate.

I somewhat agree with the point the GP made, the fee structure is very much an early repayment penalty in disguise.

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 risky borrowers and rewarding the riskiest borrowers.

When you incentivize something you get more of it.

Your borrowers know their business better than you, and you’ve provided them with a mechanism to exploit that asymmetry in information.

You sort of have to assume that your incentives will be effective: the customers who have the most reason to believe they are growing faster than baseline will avoid your product and those who are pessimistic will embrace it, greatly increasing your default rate.

> the customers who have the most reason to believe they are growing faster than baseline

if you have reasons to believe that you can grow faster than "the baseline", it makes sense to use that evidence to borrow from a traditional bank. If you are undertaking a risky business move, the bank will not want to lend you the loan, and this model stripe has is going to be the next best thing.

Perhaps, but it’s really only worse looking at it from the APR. The business is still performing better nominally when they outperform so there’s no incentive to do worse on a nominal basis.

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.

Most midsize businesses will be thinking of having at least two CC processors.

Having a stripe loan would make me, as a successful business owner, make that move much sooner.

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.

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.

This can do with even simpler phrasing - Stripe carries the risk of the business underperforming in exchange for the business carrying the “risk” of over performing.

In a regular loan, the bank makes you bend over backwards to prove you’re risk free, and then charges you interest to give you the loan anyway, and you’re on the hook to pay back a constant amount whether you’re under or over performing, at risk of going bankrupt.

This is what is known as Merchant Cash Advance (MCA) https://en.wikipedia.org/wiki/Merchant_cash_advance, nearly every business with at least $20k credit/debit card sales a year has access to through their payment processor, bank, or companies that specialize in that sort of arrangement, of which there are tons. It is not a loan, what you are doing is basically selling your future card sales at a discount.

Is there a similar term for Cash Receivables not from Credit / Debit Card but from Business to Business 30 Days credit?

Factoring ? https://en.wikipedia.org/wiki/Factoring_(finance)

factoring comes in different flavors too. for instance, you can flat-out sell future aaccounts receivables (at a discount, so it has an imputed interest rate), or you can use it as collateral for a loan (with an explicit interest rate).

Asset Based Lending is the blanket term for borrowing against receivables and/or inventory: https://en.wikipedia.org/wiki/Asset-based_lending

It seems a bit as though the model is set up for independent operators and 'Mum & Pop' shops that use Stripe but don't have the business acumen to see the issue.

Or, people who have a good history of selling with Stripe, but, lack the credit rating, history or collateral to use other lenders.

It's a very carefully and cleverly thought out payment model, which leads me to believe they knew exactly which consumer base they were going after.

You nailed it on the last point. It also greatly helps small stores that have highly variable sales. Like with my ebay shop I can go days without selling anything, then have a weekend where I pull a few grand.

Well, the "Mum & Pop" stores you mention, are far more likely to be at risk from taking out a loan that they end up not being able to pay back on time, and late fees and compounding interest make the total cost of the credit far more than they expected. It seems like the total risk here is visible, whereas the worst-case risk of a conventional APR model is difficult for inexperienced users to perceive.

This seems like a relatively standard MCA product, at better rates than typical MCA providers. Stripe's betting its underwriting is superior (very likely) and it has a lower cost of capital than competitors. Square Capital does the same thing.

It seems novel for folks outside the industry but businesses are bombarded by MCA adverts on the daily and have been for years.

Harsha from the Stripe Capital team here. We’ve designed the program so that most offers take about 8-12 months to pay back, and therefore the repayment rate would change to reflect that projected duration (which would ultimately impact the APR). The 15% repayment rate you see on the landing page is just an example.

We do think this is a significantly improved overall user experience—it works straight out of your Stripe account. It’s automatic, based on your sales. The cost of the loan is a single fixed fee that adjusts to the loan amount paid over the course of the loan—there is no interest rate or additional fees. The effective APR is dependent on how long it takes to repay the loan.

This is really unclear from the landing page, but seems like crucial info. It's also not mentioned on the FAQ page from what I can tell. Might be good to add somewhere.

Are there any common scenarios among Stripe users/repayment schedules where the effective APR would be advantageous compared to a traditional loan (convenience of application process notwithstanding)?

> about 8-12 months to pay back

Wow, that's a whopping 10-15% p.a. interest rate. Time to mint the money has come for Stripe, yeah?

As said by Patrick in a different comment, it really depends on how your sales are going therefore comparing it to a traditional loan with a fixed p.a. regardless of your sales doesn't make a lot of sense.

I didn't read the exact terms, but based on the landing page it seems like your downside is capped, which is a big thing. I.e. if you suddenly stop making sales, you don't repay them . (not sure if there's a clause that makes you repay if you never make sales for a couple of years after taking out the loan)

For a mom & pop store without a personal guarantee 10-15% is an excellent rate. If there's a personal guarantee attached then 10-15% is a terrible rate.

It's worth mentioning that many small businesses can't get SMB loans that cheap (if at all), and can also earn a higher return on each dollar reinvested in their business.

In the early stages of an internet-enabled, distribution-bound company, 1 dollar reinvested (say in ad spend) can net you 1.5-2 dollars in increased sales. So even at a quite high APR, it's still a net win for many companies to take that debt on.

Obviously you'd rather take on debt at a lower APR, but if your risk of default is high, nobody is going to give you a low APR.

structured repayment of the loan -- fixed fee, dynamic loan term -- is is an interesting way to make it hard to compare against other lenders

You would need to consult an appropriate scholar to be sure, but it could be to be compatible with Islamic finance, which prohibits charging interest. Some banks do mortgages structured around fees rather than interest too.

Any transaction of money in exchange for time is interest.

But religion, unlike laws, thrives on technicalities.

Some Jews won't push a button in an elevator on the Sabbath, but it's fine if its programmed to stop at every floor.

https://www.kosherswitch.com/live/tech/how

Wow: that is some tortured denial of cause and effect.

I am going to set up a switch that buys you a hamburger delivery. But it has a 1 in 1000 chance of stealing 1000000 dollars. Are you committing a sin when you push the switch because you are hungry?

These approaches are so baffling to me. Their tagline is even "control electricity on Shabbat!" while telling you all the ways you're technically not controlling electricity.

Loopholes that violate the spirit of the law but technically fit the letter of it make sense in doing your taxes, but it seems extremely risky to take that approach with a god. "Haha guys, very clever, you got me" doesn't seem like the end result for a being known for smiting.

I assume it’s a signal to others that you’re also willing violate the spirit of other laws (or rules, not necessarily legal) under the guise of plausible deniability.

There's no prohibition on controlling electricity as such, the most relevant actual prohibition (there are a few other justifications for particular circumstances) is on starting a fire, which prohibits turning on a light (which most devices involve) and also many ways of controlling electricity (e.g. a switch) violate as it a spark is created. Benefitting from a fire that's started before Shabbat is not prohibited, only the act of lighting it.

Regarding the loopholes, well, in Rabbinic Judaism the notion is that there simply can't be any loopholes there. Unlike laws written by humans, the word of God is considered axiomatically perfect and flawless - if you find a "mistake", that can't be a mistake, that's fundamentally impossible, God does not make mistakes. There simply can't be an accidental hole or a mistaken omission. The letter of the law is considered literally divinely perfect, every nuance or "loophole" is considered as intentionally placed there by an all-knowing being that knows all the future consequences of that nuance or "loophole". If God wanted the law to be slightly different, He obviously could and would have made it different, but He did not, so it should be interpreted exactly as written.

I suppose I'm left wondering if this causation loophole - a properly engineered switch being deemed not to cause anything, despite an obvious cause/effect linkage to an observer - is usable in other, nastier scenarios.

Can I (setting aside the obvious secular punishments for a moment) murder someone with a bomb activated via one of these switches?

IMHO those are not comparable scenarios.

In the case of murder, the result and intent is prohibited, so no matter how you get there, that's a sin.

In the case of having a fire on Shabbat, there's nothing wrong with wanting a fire or having a fire, the result is not prohibited or a moral wrong; but in that particular time and place you are prohibited to light a fire.

A hundred years ago the standard solution was to simply have someone else (non-jewish) do it, e.g. local gentile boys used to spend saturday mornings doing minor chores in jewish households for some tips. Nowadays it is done with technology. Murder is inherently wrong, so having someone else do your murdering for you is also wrong, but these actions are merely prohibited for you personally so having someone else (or something else!) do it in your stead is considered just fine.

>the standard solution was to simply have someone else (non-jewish) do it, e.g. local gentile boys used to spend saturday mornings doing minor chores in jewish households for some tips

That sounds like a bad incentive. If a shabbos goy decided to convert he would have to stop being paid, which means that you would be paying the shabbos goy to not convert.

That's perfectly fine, he should not convert if minor tips are an obstacle. Conversion is possible if someone really wants to, but is not really encouraged (and perhaps even intentionally discouraged, different branches of Judaism have different attitudes towards this) - in stark contrast to Christianity and Islam, proselityzing and bringing every soul worldwide to God is not considered an important goal.

Judaism is for the Jewish people, and while some individuals may join (e.g. in marriage) the Jewish people, from the perspective of Judaism it's perfectly okay if all the non-Jewish peoples (i.e. most people in the world) stay non-Jewish forever and their relationship with God is different.

In a similar way, there is also the Sabbath Wire: http://mentalfloss.com/article/91594/theres-wire-above-manha...

18 miles of translucent wire stretches around NYC called an eruv:

On the Sabbath, which is viewed as a day of rest, observant Jewish people aren't allowed to carry anything—books, groceries, even children—in public places (doing so is considered "work"). The eruv encircles much of Manhattan, acting as a symbolic boundary that turns the very public streets of the city into a private space, much like one's own home. This allows people to freely communicate and socialize on the Sabbath—and carry whatever they please—without having to worry about breaking Jewish law.

Wow. And I thought the elevator was bad.

I suspect that although this lending may be Sharia compatible, many other parts of Stripe would not be due to interest rate components (and depends on fine print of penalties, recovery etc too).

Isn't this inherent in a fixed fee, though? The faster you pay it off, the higher your effective APR will be. Whereas with a traditional loan your APR is fixed, but you end up owing more money the longer you take to repay it.

Seems to me like they're targeting businesses that do not meet your assumption of high sales volume.

They're not not targeting higher sales volumed merchants. It just happens that more lower volume merchants use working capital advances to boost their free cash flow or invest it into something that will net more profit even at the cost of a discount rate.

It took you less than 30 mins from the time this was posted to calculate the APR for two possible repayment schemes and compare that to loans available elsewhere. I'm not seeing the problem. I think it's fair to presume that businesses in the market for a loan will be at least as capable of understanding the loan structure as you, some internet commenter with no personal financial interest in the issue, were with less than a half hour of time.

>I think it's fair to presume that businesses in the market for a loan will be at least as capable of understanding the loan structure as you, some internet commenter with no personal financial interest in the issue, were with less than a half hour of time.

This is not true in my experience. A lot of people just wing it through life without doing or being able to do any calculations. Not that it excuses them.

> It's essentially a prepayment penalty in disguise.

I can see that. But put another way, it's a flat fee. No disguise.

I see issues with you being able to get better rates elsewhere, but by calling it a fixed fee instead of using an APR with fine print saying there's a prepayment penalty, I see the OPPOSITE of disguise.

Not everyone has a credit card with a $25,000 limit on it. That really is the point of factoring future receivables like this. Stripe has visibility into your income that a traditional lender does not have, and can use this data to make loans that traditional banks and credit card companies would not make. That has value to people with more limited credit options than you apparently have, and is well worth the fees that Stripe is charging to the businesses that need it.

If it seems like you were paying it back too quickly you should switch most of your sales to another payment provider like PayPal or Square to throttle your Stripe revenue lowering your effective APR until it's compatible with a bank line-of-credit.

They surely have built-in terms covering that premise.

Otherwise you could switch 99% of your payment processing off of Stripe and pay them a trickle of your sales over a decade.

For example, I wouldn't be surprised if they legally tie repayment to your actual business sales (or any sales conducted through a qualified payment processor, comparable to Stripe; some legal structure that catches this), not just your Stripe sales. In the pitch they only mention repayment directly coming out of your Stripe sales, because that simplifies the pitch. Otherwise it exposes them to an extremely obvious angle for being taken to the cleaners both by scammers and plain desperate business operators.

They lend a business $100,000. That business immediately switches 99% of their processing to someone else. Repayment occurs at a comical rate - forever. There's no chance they left themselves open to something so obvious, it'd never get past even a mediocre lawyer.

Edit: what you would do is build a requirement into the loan contract that you must pay out of all sales conducted by your business and or all sales handled by any payment processor (I'd go with all sales, if I were Stripe), not just sales that go through Stripe.

A slight variation of that, would be that Stripe is granted the legal right to audit your business first, in the event of a certain % drop in sales / repayment. The second step, if they catch you evading them in the audit, is that the contract stipulates they have the right to collect from all business sales. The point of this step-based process, is to avoid constantly throwing a serious flag at operators on modest drops in sales. So if sales - repayment - drops by a modest N%, they do nothing initially, perhaps send a friendly message to check in; if sales (supposedly) drop dramatically (either short-term or longer-term), they ramp up their approach accordingly including becoming more aggressive in talking to you and possibly including an audit (business review) request. Keep avoiding them, it becomes a serious legal matter, as it would with any major creditor.

In any large scale financing business like this, the creditor must be very well equipped to pursue legal remedies against the borrower. You can bet that Stripe has built in an angle to pursue attempts to evade them, in small ways and up to entirely ghosting them on the loan.

I do wonder about those terms then. I run a Shopify store that did millions of dollars via Stripe and PayPal then quickly transitioned to mostly revenue from paper checks when we backed away from consumer sales towards bulk orders, retail and distributors. I'm considering turning off direct consumer sales entirely and moving to Amazon.

That’s what I was wondering if you switch over to Braintree after taking the Stripe loan and just leave a small percent of transactions on Stripe you can have the loan be many years lowering the APR to compete with a small business loan. How are they going to know you switched transactions over to Braintree? Could just be business slowing down.

Naively, I'd guess you can build an ML model to detect the difference...

Well, and of course Stripe doesn't (and hasn't) peddle itself as a value option or a business that gives you the "best deal". The best part about Stripe is convenience, as with all their products. If you take out a small business loan through Stripe, and you use their other checkout or payment tools, it makes repayment automatic. That's the selling point. I don't think anyone looks to Stripe for low fees or value loans.

That is not what I understood to be the driver. It would be nice if some Stripe-based store-owners reading this could opine on this?

I assumed the primary value was tying debt service to revenues at a micro level.

I assumed the secondary value was that -- since Stripe had intimate knowledge of your store, revenues, cash flows, correlations to customers -- that they could better price your loan and give you a more competitive rate on the loan.

Help me understand why I care about effective APR in a scenario where it has no impact on the amount I am charged? The customer for this product is agreeing to a fixed amount of interest in the form of a “fee” and nothing increases that fee. A customer who wants $25,000 for less will get a line of credit, but will then risk their assets as collateral.

Alternative financing is always going to be expensive. Most businesses won't have access to bank rates, so they often have to access capital via alternative lenders (factoring, Merchant Cash Advance, high-interest fixed-term loans) that often charge upwards of 50-60%.

Comparatively, 20% APR isn't so bad.

>Most businesses won't have access to bank rates

50-60% would violate most if not all usury laws, unless you are a bank. Even in my state the usury is capped at 18%, so to even charge 20% you have to be a bank or its an illegal loan.

I think factoring finds a way around that. It's often higher than 20%. I don't pretend to understand how it works, but it seems like a great business model.

Usury laws typically apply to consumers, not loans to businesses. They also probably wouldn't count this type of financing as a loan. Regardless, this exact method of financing already exists and is very popular so I'm going to go on a limb and say that it's legal.

I actually assumed Stripe had a bank license/charter (a quick Google search after your comment suggests they do not).

>Usury laws typically apply to consumers, not loans to businesses.

That may be a fair characterization, but its definitely a jurisdictional issue state to state. I know some States for sure exempt commercial loans, others exempt loans over certain amounts, and some exempt loans to certain businesses by industry (but not a outright exemption on commercial loans).

Obviously Stripe has a good public image, but unfortunately with SV unicorns like Uber, AirBnB, CoinBase (almost any cryptocoin/blockchain start up), its not unfair to say we should just assume business practice comply with the law.

How does this offering compare to Square? Square Capital has been around for years now.

And PayPal and CapitalOne and loads of others, Stripe has nothing new here - just an old product to a new(ish) segment they have a direct line to

Form my recollection, Square launched something very similar a few years ago?

That is correct. Similar model for repayment based on % of sales https://squareup.com/us/en/capital

> an interesting way to make it hard to compare

It's simply a side effect of the non-typical structure of the loan.

The loan structure is a new offer for the market an aligns with the customer's business needs for the first time ever. Saying you can get another loan elsewhere is incorrect for a certain segment of businesses.

Talking of APR comes from a saver mindset on a fixed budget, which is what people do, not corporations. Corporations focus on generating money first, and optimizing last.

I think this is good model, Good performing business always have option of taking loan from alternative places instead of Stripe at better rate. Fixed fees no compounding helps businesses avoid debt trap. Which is a reason of so many business failures.

It sounds like it is closer to equity than to debt.

Are factors ever a good deal?

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