Their page never specifies a "discount" rate and only show the 10% remittance rate. This makes their example table at the bottom near fraudulent because the "daily revenue" column is already discounted. I'd bet their discount rate is the same ~13% it was six months ago [src].
They know your revenue history, so I expect they're offering something which will likely take you 9-12months to pay back at the remittance rate (10%) based on your projected revenue. Note since this isn't a loan, if you pay it back early by growing revenue, Shopify still makes the same returns (13% discount rate) on their capital. Good deal for them, likely comparable to credit card rates for businesses, but since it's cash it's more flexible (pay employees, payoff loans, brides, etc).
[src]: https://twitter.com/seobrock/status/669269206584553473
Shopify is betting that they can predict when you'll pay it back, then set a discount that makes them more money than time-based interest. If they lose, they still get their money back eventually, and if they win, hey, that means you grew faster than expected, which is great for everybody.
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.
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.
A Chase (or whatever) business card at 13% is still better than this since you can pay it back early.
I suspect the fee is not the same for everyone. They probably have some way of judging risk. Which would explain the secrecy.
That's a default though
Where do they explain what happens if you don't repay?
https://en.wikipedia.org/wiki/Factoring_(finance)
Of course, when Shopify, Square, and PayPal put their startup-land spin on it and call it "Capital", it sounds cool and new (the fact that they wont use the term says a lot). IMO factoring should only be considered as a last resort of capital or when you have some large/long-term enterprise contracts and need to ramp up production fast (eg Wal-Mart wants 100K of your widgets or the State of CA just ordered $4M worth of software from your 3-person shop). Even then, there are usually other sources of capital with better terms available.
This is different because Shopify is the storefront/ payment processor, they can collect money when the product is bought; they don't have to negotiate with sophisticated people on when the payment can be made. Shopify is fronting the capital before it's even been collected, where this is not the case in the typical factoring company's business.
If you're a business which experiences cashflow issues, I'm suspect it works out cheaper than a revolving credit facility or a series of regular loans, but like any flexible credit facility, it's a lot cheaper if you don't need to use it at all.
As a one-time/infrequent shot, it's actually a really nice lending product in that it's not going to cause undue strain on your business if your sales start to flag since the payments go down along with it (and because the total interest you pay is fixed, the implied APR is actually better that way). Where they can become problematic is when a merchant keeps rolling one after another of these since then you're paying a high price for credit and would be better off with a small business credit card or line of credit.
Definitely would like to see more transparency with these either way though. When used properly, both the lender and the borrower win, and so I find it odd that lenders try to obscure the details.
Beware though. While they pitch it as "no interest, just a fee", the typical effective APR of a PayPal Working Capital loan is between 15 to 30 percent.
I suspect this has similarly high fees, since they seem to be hiding the information.
Bloomberg wrote about a couple of guys that started such a business and got bought for (maybe, exact terms not stated) $60 to $100 million.
http://www.bloomberg.com/news/features/2015-10-06/how-two-gu...
so shopify sells merchant services, and uses one of the most common marketing tactics. and they made a fancy landing page.
it's a tactic to prey on desperate businesses where they can be taken at the source of their money before it's even put into their account.
