Receiving capital can improve your cash flow and ensure your top-selling products stay in stock. Some businesses also need financing to get started and establish a foundation. If you have an online eCommerce store, you may want to consider Shopify Capital as your funding solution. This guide will explore how Shopify Capital works, some key details to keep in mind, and some alternatives if you are looking for another financing option.
What is Shopify Capital?
Founded in 2016, Shopify Capital is a business funding option that allows you to repay the loan as you sell inventory. Shopify touts “founder-friendly capital” and has lent more than $5 billion to Shopify merchants. Shopify Capital does not take any equity in your company.
How Does Shopify Capital Work?
Shopify Capital is exclusive to Shopify merchants at any stage in their journey. Eligible eCommerce business owners can receive up to $5 million, with options to renew. If you do not already have a Shopify store, you will have to create one. You can start free and then pay $1 for your first month.
Small business owners make payments equal to a percentage of daily sales. After being approved, you will receive funding within two business days. You can use the capital for any business-related expenses, such as hiring top talent, initiating marketing campaigns, adding to your inventory, or other business expenses.
Who is Shopify Capital Best For?
Shopify Capital is best for online business owners who run Shopify stores and need extra capital. Financing can assist with growth initiatives by building up your inventory and allowing you to collaborate with influencers.
Shopify Capital also works great for businesses that don’t want to make fixed monthly payments. Some months are better than others, and it may be difficult to keep up with monthly loan payments during your slower seasons. Shopify Capital takes a percentage of daily revenue, so your loan payment depends on how well your Shopify store performs.
Features of Shopify Capital
These are some of the top features of Shopify Capital.
100% Online
You don’t have to visit your local bank or credit union to get the financing that you need. The entire process takes place online, and you can ask questions along the way.
Wide Range of Loan Amounts and Competitive Pricing
Shopify offers founder-friendly capital with various loan amounts that can get as high as $5 million. The company offers competitive pricing to encourage its merchants to seek out Shopify Capital.
Flexible Repayment Terms
Your payments depend on how many sales you make each day. Shopify will take a percentage of daily revenue as your loan repayments. You can pay off your debt more during busy months and navigate slower months more easily.
Equity-free Funding
You do not have to give up any equity to use Shopify Capital. Angel investors and venture capital firms will require equity. Shopify Capital also offers comparable capital amounts to those two choices since Shopify lets merchants borrow up to $5 million.
Fast Deposits
You can receive funds within two days of getting approved. It can take over a week to get financing from other financial institutions. SBA loans can take multiple months to receive.
Pros and Cons of Shopify Capital
These are some of the advantages and disadvantages of Shopify Capital.
Pros:
- You don’t have to give up equity
- Flexible payments
- Founder-friendly financing
- Quick funding
- No personal credit check is required
Cons:
- You must be a Shopify merchant to qualify
- You will have to go through the process to discover the requirements
- Repayments take place daily
How Do You Qualify for Shopify Capital?
Shopify isn’t as clear about its eligibility criteria. You will have to go to the Shopify Capital page while logged into your store. Shopify will let you know if you are eligible after you have applied for funding. You will only receive an email from Shopify Capital and a message on the Home page of your Shopify admin if you qualify. If you do not receive any messages, your store is currently ineligible for the program.
Shopify Capital Application Process
The application process is straightforward. If Shopify determines you are eligible for a loan, Shopify will review your store’s sales history and any required documents. You will have to confirm your identity and business details when submitting an application.
Alternatives to Shopify Capital for eCommerce Sellers
Shopify Capital can be a great resource for eCommerce sellers, but it is not available to everyone. Here are some viable alternatives.
Revenue-Based Financing
Revenue-based financing is similar to Shopify Capital. You can get a lump sum but have to make payments equal to a percentage of your monthly gross revenue. This financing method only involves weekly or monthly payments instead of Shopify Capital’s daily payments. It’s also an option for eCommerce store owners who are not Shopify merchants.
Stenn provides a revenue-based funding solution specifically designed for eCommerce businesses seeking working capital without the requirements typically associated with traditional loans. With a proven track record of delivering over $20 Billion in funding to numerous eCommerce and SaaS businesses, Stenn has established itself as a trusted partner in helping companies in this industry access the capital to fuel growth. To determine if your eCommerce business qualifies for Stenn’s financing solution, fill out this simple form to learn more with no obligation.
Merchant Cash Advances
A merchant cash advance is available for business owners with low credit. You will receive a lump sum, but these cash advances get expensive quickly. Some have 100% APRs or higher. Unfortunately, paying off a merchant cash advance will not improve your credit since this financial activity is not reported to the major credit bureaus.
Secured and Unsecured Loans
Secured and unsecured loans both involve receiving a lump sum in exchange for fixed monthly payments. Since the payments will always stay the same, it’s easier to plan out these loan payments in your budget. These loans have competitive rates and can be optimal for eCommerce store owners who generate consistent revenue. However, they aren’t as ideal for business owners who experience significant highs and lows that can impact their ability to make consistent monthly payments.
Secured loans involve collateral, such as your inventory or real estate. Lenders can take your collateral if you default on the loan. Unsecured loans do not have collateral requirements but often come with higher interest rates and higher credit score requirements. Requirements around your credit score and income vary substantially for each lender. A better score will entitle you to better rates and terms, but some lenders specifically work with borrowers who do not have the best credit scores.
Revolving Credit Facilities
You can also use a business credit line to get the financing you need. These credit lines have drawing periods, during which the monthly payments are much lower. Once the drawing period concludes, the remaining balance becomes a traditional loan. Revolving credit has variable interest rates, but you only pay interest when you borrow against the credit limit.
You can still access the revolving credit line as you repay it. Business owners can borrow additional funds from their credit lines as long as the drawing period has not expired.
Invoice Financing
Invoice financing involves using your unpaid invoices to raise capital for your business. Under this arrangement, you can receive a high percentage of your invoice upfront, and the lender receives the rest of the invoice once the customer makes a payment. However, you must still get the customer to pay off the invoice. Invoice factoring lets you part ways with the invoice and the responsibility of chasing down the customer.
The Bottom Line: Is Shopify Capital Right for Your eCommerce Business?
Shopify Capital is a useful option for Shopify merchants who need extra capital. The additional funding can help businesses navigate cash flow challenges, invest in advertising campaigns, hire new talent, and work on other growth initiatives.
Shopify does not require a credit check and offers flexible payments. You can even get your capital within two days of getting approved. However, Shopify Capital isn’t a viable option for eCommerce business owners who do not use Shopify. Additionally, not every merchant may want to pay Shopify a percentage of their daily revenue.
These loans also have high minimums. To qualify for Shopify Capital, you must borrow at least $1 million. In the state of New York, the minimum loan amount is $2.5 million. The Shopify Capital program is only available in the United States, so it is not a viable option for eCommerce stores headquartered in international markets.
It may be worth a closer look if you qualify for Shopify Capital. You can compare the rates and terms of a Shopify loan with those of the other choices. Shopify does not run a credit check, so applying for Shopify Capital will not impact your credit score. It doesn’t hurt to apply and see what happens.
FAQs About Shopify Capital
Shopify requires that you repay the loan within 18 months. However, if your Shopify store’s revenue grows, you might pay it off faster.
You can apply for additional funding if you have repaid at least 65% of your active Shopify Capital loan.
