Canada’s most valuable company has started cutting the cheques that big banks won’t.
Driving the news: Shopify is quietly building a sizable money-lending business, with almost US$1.8 billion in loans on its books as of last quarter, per The Logic. The loan division, Shopify Capital, has grown by at least half in each of the past three years, with total loans up 19,500% since launching in 2016.
Shopify uses algorithms to find strong businesses already using its platform and pre-emptively offers them funding. Merchants then pay off the loans by forking over a cut of their daily sales.
While Shopify doesn’t run a credit check, the loans are invite-only, come with short repayment terms, and charge relatively high fees (~$13,000 on a $100,000 loan).
Why it’s happening: Because of all the data it collects from its merchants, Shopify has a unique edge in predicting which businesses would benefit from a loan and be able to pay it back. The company, which already takes a cut of all its merchants’ sales, also stands to directly benefit if that loan translates into more business.
So far, the company hasn’t reported a single major loss on a loan and made over US$250 million from interest and fees last year.
Why it matters: Shopify Capital is filling a gap in the market for entrepreneurs (particularly those in the e-commerce space) who often can’t access loans from Canada’s risk-averse banks. One study found more than a quarter of Canadian small business owners needed to put up their homes as collateral just to get a bank loan.—LA