If you’re a tech company and you aren’t getting into the lending business, are you even a tech company?
Following in the footsteps of PayPal and Square, e-commerce software company Shopify said on Wednesday that it would start offering cash advances to business owners who use its software. The program, called Shopify Capital, will let eligible Shopify merchants obtain a lump-sum cash advance in exchange for a fixed percentage of their daily sales. Cash advances are popular with small businesses that don’t have the time or business history to secure a loan from a bank.
The Shopify announcement comes more than two years after payments companies PayPal and Square began offering similar programs. Right now, companies that serve small businesses are seeing this market as a way to create a new revenue stream that can be sold to existing customers — and, they hope, help retain them. They are joining an increasingly crowded space, as the online alternative lending space has heated up in recent years.
Merchant cash advances have had a mixed reputation in the past, due to hidden fees and the risk of a business getting addicted to them. But internet companies like Shopify are trying to remove the stigma around them by promising to disclose up front how a business will pay back the advance. Square recently moved from offering cash advances to actual loans.
Over time, expect a few things to happen as even more internet companies that work with small businesses start offering loans or cash advances. First, the offering will obviously become less of a differentiator among competitors. Secondly, businesses will start jumping to the lending program that offers the best deal — and as a result, prices and profit margins may come down for the business offering the cash advance or loan.
This article originally appeared on Recode.net.