Shopify Capital is one way to fund the purchase of stock and to pay for marketing enabling merchants to grow faster. The eCommerce world agrees that for the average business looking to grow, Shopify represents one of the best platforms to use. It has the technology and features most businesses would need to market themselves online, take payments with ease, and fulfill customers’ obligations.
Merchants may have a relatively easier time building and managing their establishments on Shopify, but something else stands in the way of success- capital. Raising capital to pay for stock can be difficult, which explains why 38% of small businesses attribute this reason to why they experience failure.
Scary statistic? No doubt!
Enter Shopify Capital.
What is Shopify Capital?
Shopify Capital is the name of the eCommerce services provider’s business finance initiative. In simple English they loan money out and also give merchant cash advances. The program allows Shopify merchants to get capital when they need it and at a (potentially) much lower cost than other financing programs.
The prominent driving force behind Shopify Capital revolves around the fact that the eCommerce platform knows all there is to know about its merchants’ financials so can make a data driven decision.
With that kind of information, it is easy to know which merchants need financing and how much they can take on and repay with ease while offering arguably favorable repayment terms.
This isn’t anything new. As a business owner myself, I’m offered capital inside every app I open. Paypal are constantly trying to make me take £100k of instant financing. As are Tide.
What does Shopify Capital offer?
Shopify Capital has two types of funding- merchant cash advances and loans. The loans have minor differences between them but work the same.
The merchant cash advance gives Shopify a percentage of the merchant’s future credit and debit card revenue in exchange for the funding. The percentage of sales is collected every business day by keeping some of the card-based sales. Due to the highs and lows of the market, there is no time limit set- Shopify holds back some of the revenue until the debt is paid.
The short-term loan offers a merchant a lump sum that is paid back in addition to a flat fee over a fixed period (typically less than a year). The payments are made in installments payable weekly or daily.
Who can get funding from Shopify Capital?
The eligibility requirements to get funding include:
- You have to process a pre-determined number of sales
- Have a profile seen a low-risk
- Have a payment provider (third-party or Shopify Payments options are acceptable)
- Be from the United States, United Kingdom, or Canada (if you’d like the merchant cash advance) or the US or UK if you want the other loans option
NOTE: Shopify Capital does not have a way for merchants to apply for loans. The platform monitors accounts and notifies merchants when they are eligible. Getting the notification does automatically translate to approved funding.
The Shopify Capital funding program is excellent for some merchants, especially on the lower end and before growth explodes. However, for businesses growing quickly, bank loans may offer better terms. The scheme has been positively received by mainstream media outlets like Recode, VentureBeat, and Business Insider. But you should do your own maths as to what is worth it for you. Interest rates remain relatively low still but at the end of the day this is another revenue source for Shopify. Shop around and get the best deal for you. Most merchants requiring finance do so for acquiring stock in the run up to the big sales season and will be looking to pay it off over a short timeframe of 3-6 months.
The perks with Shopify are that the application is easy (given Shopify has all the pertinent information), financing is inexpensive for businesses of a certain size, and the benefits of having all this integrated smoothens the repayment and progress tracking. But so long as you bank with a more modern bank you’ll also likely be able to get offers from them too, often instantly.
Remember that a loan is a loan and that any money received will ultimately need to be paid back with fees and interest. And also that this isn’t business funding (like Venture Capital or other forms) but more like business financing. No matter how it is branded or sold to you, financing should only be used where absolutely necessary and where it makes financial sense.
For example if you sold out of stock by mid Nov last year then it makes sense to take a loan to cover inventory purchase for the following year so long as market conditions remain similar or better. Having enough stock in for the full sales cycle makes business sense. If you’re growing fast and sales are solid you may need not need that cash but having it will enable you to grow quicker and make more profits then it makes perfect sense. However if you’re struggling and business is in decline a loan makes little to no sense usually.