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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 le
by u10 7y ago
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.
- throwaway_law 7y ago>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.
- eloff 7y agoI 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.
- jonknee 7y agoUsury 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.
- throwaway_law 7y agoI 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.