As I’m cleaning up my inbox this morning, I notice an offer from Stripe: “You’re eligible for a new financing offer through Stripe Capital.” Two clicks and I’m on my way to having a sizable sum deposited in my bank account. Sounds pretty good, right? Let’s take a closer look.
They are charging 15%+ UP FRONT, and they take 20% of every credit card transaction that comes in before you ever see it. The term is structured so that the loan is paid in under a year. My clients through Restaurant Best Practices and Restaurant Start-Up 101 understand that rent and debt service shouldn’t be more than 10% of sales; based on industry benchmarks, you’re lucky if you have a 7% net profit margin. So, where’s that 20% coming from? Paying back 20% potentially means negative cash flow. And now you’re in a worse position to ask for more money.
Unfortunately, I’ve seen this happen to several folks, one of them filing for bankruptcy right now (no kidding!). They think they’re trying to “bootstrap” their business together, but it’s really just poor planning. Easy money isn’t cheap and it’s a potentially very slippery slope.
If you need financing, consider what it’s for and do your homework. Different investments may require a different kind of loan. Your bank will have more favorable options for a line of credit to use for seasonal fluctuations or short-term receivables financing—the key word here being “short-term.” But any type of leasehold improvement or equipment financing will have a longer term that works better with your cashflow. And if you have good credit, you’ll likely qualify for a better interest rate.
Unfortunately, there are many easy ways to GET money. It’s the payback you want to be careful about. Questions? Schedule a call.