[kennywinker]

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 borrowers than they are about offering people something genuinely useful.

Reminds me a little of cheque cashing shops... Find a group who aren't able to access mainstream financial services (in this case small online sellers) and charge them excessive rates for your "generous" offer.

[patio11]

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 potential is too low. The bank will, instead, steer you towards credit cards. Credit cards are a wonderful product but they don't substitute for the need.

There exist a bunch of alternative lenders who are eating this space up with pricey-products-which-actually-get-issued. OnDeck gives fairly uncomplicated lines of credit, for example. Their stock offer is 36%. (I have one, and occasionally use it.) Kabbage (love the name) does a merchant cash advance with implied APRs which are even higher. There are more costly options still, including traditional hard-money lenders and merchant cash advance providers.

This offering is closest in character to Paypal Working Capital.

[pbarnes_1]

SBA loans are not that onerous -- go to a credit union (https://www.sffirecu.org/business/loans/small-business-admin...) instead of a big bank and you can get it done.

A Chase (or whatever) business card at 13% is still better than this since you can pay it back early.

[kennywinker]

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.

[pbreit]

Frequently those 10% loans are for, say, 6 month payback periods so the effective APR is over 20%.

[fludlight]

Also, the typical borrowers tend to have at most a rudimentary knowledge of finance so they don't understand the terms of the loan. Sometimes they don't even bother reading the loan agreement. This makes anecdotal evidence extra unreliable.

[HappyTypist]

Generally interest is annualised and measured in APR.

[pbreit]

Actually, on these types of loans, generally not.

For example: https://squareup.com/capital

I don't really get how they arrive at their numbers but on first glance it looks insane. On the $10k loan with the $1,300 fee. If you had daily sales of $1,000 you'd pay the loan off in 100 days making the APR somewhere around 50%.

They are frequently fee-based, not rate based. And are frequently less than a year with the rate being highlighted, not the APR.

[mrgreenfur]

Yup, this seems kind of predatory. Instead of honestly answering what the interest rate is or give an equivalent they wave it away with jargon. Answer after answer is just jargon and more jargon. They don't even show what the total amount paid back is! They instead show very clearly they keep drinking your sales until they decide to stop.

[fludlight]

Cash flow sweeps are pretty common in commercial banking, even in much larger, market rate, respectable loans. That said, the opaqueness of this product is disconcerting. It seems designed to confuse desperate people.

[narrowrail]

It appears you are 'chosen' for inclusion into the opportunity based on your business history with Shopify and that they will present you with specific details once you enter the processes. Just evaluate it alongside your local bank's proposal.

[tyingq]

>>opaque to the point of dishonesty

I suspect the fee is not the same for everyone. They probably have some way of judging risk. Which would explain the secrecy.

[kennywinker]

It's not the lack of specific numbers that I find the most disreputable, it's truth-bending statements like "Merchant cash advances do not have an interest rate."

[lightbendover]

Merchant cash advances (a sizable, although definitely not huge, segment of lending) do not have an interest rate, they have a factor rate, which is an entirely different thing in finance. The factor rate is simply a multiple on the amount advanced (money that the borrower gets now) in order to determine the constant amount that must be repaid to the lender, the right-to-receive amount. Calling it an interest rate would actually be dishonest.

[tyingq]

And the factor rate, I assume, varies based on the amount, and the credit risk of the borrower. Which is why it isn't stated up front.

[cloudjacker]

Also, they say if you don't have any sales, then you don't remit anything

That's a default though

Where do they explain what happens if you don't repay?