New fast-moving tech companies have gained a foothold in the business market and are now looking to expand activities.
Take Stripe, the blossoming payments company that has swiftly rolled into a billion- dollar business itself. Reports are emerging that it is asking customers to road-test an advance cash service that would provide funds in under 48 hours.
It recognises that access to credit on a fast-serve basis is something that many businesses with an eye on cash-flow are keen to take advantage of.
The current testing programme titled Advance involves a principle sum with an agreed percentage payback based on daily sales. So, a customer could receive £50,000 in funding with a 10% charge of £2,500 to be repaid via an agreed percentage of daily sales, typically three or four per cent. However, the company has not made any public statements about amounts available to loan or whether there are third-party backers.
Providers will often work with other sources of funding. So, for example, Square hooks up with Celtic Bank to offer cash through Square Capital. Cash is made available within 24 hours with a variety of percentage and premium payments on offer.
Other providers in the field include the likes of Amex and PayPal which offers a product which gives customers upto a third of annual sales literally within minutes. Or so they claim.
It is easy to see why a company like Stripe is keen on getting in on advance payments as margins outstrip normal loans and work on a different idea i.e. that of utilising daily sales. But it is a fast-moving sector with all the different players watching what rivals are up to in terms of the amount of capital and the premium or return.
This idea that new methods of repayment are needed is being examined by a number of leading players. Square Capital has come up with an instalments plan that allows customers to pay over a period by use of staggered invoice payments.
It appears to be paying off as Square Capital lent out nearly $400m in the last quarter, a surge of 22%.
Another way finance companies can provide a service is by using data it has on existing clients to build new relationships like in the are of fraud protection. And, of course, the more services at a company’s fingertips, the more likely it is to retain custom.
Although short-term loans can be pricier there are distinct advantages to getting your hands on cash when needed. There is such a variety of products in the market-place and it is a fast-paced environment. Although the crash of 10 years ago saw funding dry up in many cases, the innovative nature of today’s business environment means new ways to deal with old problems have come to the fore.
Whether Stripe’s new venture will be approved only time will tell but it is indicative of an industry that continues to evolve. And once one company seizes an initiative, others are not far behind to follow. But it is essential that businesses ensure that any particular product is the right one.
There can be many reasons why a business may need a service that a traditional bank just can’t provide. Speed of delivery is becoming more and more essential in the commercial world both for those offering a service in the market-place and for those who can provide financial support.