Stripe’s New Business Model: Predatory Loans
So this is a quick note about something interesting I’ve come across. I own a Machine Learning Software-as-a-Service called Product Pix which I lovingly built as a side hustle. I wrote about it in the past if you’re curious. It’s a neat little service where you upload a photo, and get its background removed. Like so:
Anyway! The business is doing nicely. And along stripe comes and offers me a loan. Take 4000$, and pay back 4500$. We’ll deduct your sales at a rate of 16.8% of your sales cycle.
Back of the envelope calculation. What’s the interest rate on this loan? 500/4000 = 12.5%.
Woah 12.5% interest? Horrible, right?
No, it’s actually much worse. I’m not expected to repay those 500$ in a year, but as soon as my sales cover it. Stripe and I both have access to my income data, and they know I’m likely to repay in less than 4 months, and can’t possibly take more than 6 months to repay this loan even if all hell broke loose.
So even if we assume my business volume crashes, I’d still pay the loan back in full in half a year. That’s more like 25% APR. All this for a tiny sized loan that doesn’t even reach a single month’s worth of income.
I’m frankly disappointed. Stripe is an awesome solution for billing. If they’re getting into the lending game, I fully expected them to be brilliant. Right now it looks like their target audience is clueless individuals who would be willing to pay predatory interest rates. Too bad.
I reached out to Stripe’s support to see if they have an explanation for this. I’m not holding my breath, but I’ll update this post if they reply something beyond “sir that’s the offer, take it or leave it” with a politeness filter applied.
