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- What is Shopify Capital?
- Shopify Capital facts and figures
- What types of Shopify Capital funding are available?
- How does Shopify Capital work?
- What can you use Shopify Capital funds for?
- Shopify Capital Reviews
- How do you access Shopify capital?
- Shopify Capital Eligibility Requirements
- Final thoughts on Shopify Capital
- FAQs
Shopify Capital: Everything You Need To Know
Shopify Capital is a popular way for ecommerce businesses to get funding. Shopify offers financial support to merchants in the US, Canada, the UK, and Australia, with funding amounts up to $5M.
The funds are provided as a lump sum, and Shopify charges a fixed borrowing fee. Merchants must repay the amount received plus the fee. Payment methods vary, including merchant cash advances (MCAs) where a percentage of daily sales is collected, or more traditional loans with monthly payments.
For example, Shopify might advance $10,000, plus a $1,500 fee, which means the merchant would need to repay $11,500 by giving Shopify a percentage of their daily sales.
Shopify doesn’t require personal credit checks, but factors like business credit, sales history, and past revenue are considered before offering funding. If payments aren’t met, the merchant could face default. Shopify Capital offers different types of funding in the US, UK, Australia, and Canada, with terms and availability varying by location.
So what is Shopify Capital? How do you get it? And is it worth it?
What is Shopify Capital?
Shopify Capital provides funding for businesses through cash advances and loans
Shopify Capital is a cash advance and loan program through which Shopify provides select merchants with the capital they need to grow their businesses.
What makes this program unique, however, is that unlike conventional loans with regular repayments, Shopify Capital funds are repaid as a percentage of your sales which should, theoretically increase as a result of this cash injection.
Shopify Capital facts and figures
Shopify Capital has been around for a few years but its reach is still somewhat limited to a handful of markets. That said, it has been extremely helpful for many small businesses.
According to Shopify’s own data:
- Between 2016 and 2019, Shopify Capital has made over $3 billion available to thousands of Shopify merchants.
- The lowest amount issued was $200.
- The highest Shopify Capital funding a store received was $2 million.
- Shopify stores that have received Shopify funding have averaged 36% higher sales than stores that didn’t have access to these additional funds
What types of Shopify Capital funding are available?
There are two forms of capital that Shopify gives out: cash advances and loans.
Both financing options work much the same way. Shopify provides merchants with a lump sum payment with a fixed borrowing cost which is paid back as a percentage of sales. The key differentiating factor, however, is how long you have to pay the money back.
Whereas cash advances come with no fixed term, loans need to be repaid within 12 months.
Repaying a Shopify Cash Advance
Cash advances are repaid as a percentage of your store's daily sales. This is set by Shopify as part of the terms of your cash advance.
For example, Shopify might offer you $1000 on the condition that you repay 10% of your daily sales. This is known as your remittance rate. A remittance is paid until the full value of the cash advance has been repaid. Alternatively, after you have repaid at least 25% of the total value of the cash advance, you can choose to pay the remaining balance in one lump sum.
Shopify Capital comes as either a cash advance or a loan depending on where you are located.
Repaying a Shopify Loan
Shopify loans are repaid much like cash advances. Shopify lends you a lump sum and you repay that amount as a percentage of your daily sales. Loans, however, come with a term limit, usually one year.
This term limit is broken into ‘milestones’ which are 60 day periods within which a minimum amount must be repaid. If the percentage of your sales through which your loan is being repaid doesn’t cover a ‘milestone’ then the difference is debited from your account.
For example, a borrower receives a lump sum of $1200. They are required to pay 10% of their sales toward the loan to an amount of $200 every two months.
However, if they only manage to sell $1400 worth of goods totalling $140 in remittances for Shopify over a two-month period, the remaining $60 will be debited from their account.
How does Shopify Capital work?
Shopify Capital operates in a straightforward way. Here's a breakdown of the process:
- Loan Evaluation: Shopify Capital reviews the merchant's sales data and payment history to assess the loan request.
- Financing Offer: If the merchant qualifies, Shopify Capital presents a financing offer, either as a loan or cash advance. The offer amount depends on the business size and sales history.
- Offer Acceptance: If the merchant agrees to the offer, Shopify Capital deposits the funds into the merchant’s bank account.
- Repayment: The merchant repays the loan or cash advance through daily or weekly payments, with repayment terms set upfront.
What can you use Shopify Capital funds for?
Different businesses have different needs as they grow and change. Fortunately, Shopify Capital can be used for just about anything.
Human Resources
More often than not, scaling up your business means coming across business needs you are unfamiliar with. One way to tackle this challenge is to hire staff with the skills you need to cover your own skills gaps. A marketing advisor, a human resources director, a sales manager–all of these roles can be filled using funds from Shopify Capital.
Inventory
To scale up a business to meet rising demand, you need inventory and lots of it. This is particularly true with seasonal peaks, for example, ramping up for special occasions like Christmas or Halloween, or seasonal events like returning to school after the summer break. As demand rises, you can use Shopify Capital to increase your inventory and smooth out your cash flow.
Shopify Capital can be used to boost your inventory and a whole range of other things.
Marketing
A great product and a great Shopify store not only needs, but also deserves an excellent marketing campaign. But this can be costly. Particularly if you want to pursue paid campaigns through digital platforms like Google Ads or Facebook.
Shopify Capital can be that little bit of cash you need to get your message out there.
Redesign Your Store
Store fronts don’t always start out perfect. Often built in haste and with little design experience on the part of their creators, businesses that grow fast often need to upgrade quickly. In this light, Shopify Capital funds could be used to hire a designer, or if you’re not quite ready to shell-out a whole lot of cash, a page builder app, like GemPages, could be just what you need (Did you see what I did there?).
How do most people use their Shopify Capital?
In 2021, Shopify found that the majority of merchants who accepted first round funding spent it on purchasing inventory. Next in line was ‘expanding their business’, followed by ‘investing in marketing’, ‘purchasing equipment’, ‘investing in technology’, ‘hiring employees’, ‘property expenses’, and then ‘licenses’.
Shopify Capital Reviews
Of course, Shopify Capital is not your only option for funding to grow your business. There are more conventional loans, crowdfunding platforms, or good old fashioned borrowing from friends and family. Reviews of the program from independent platforms are scant, but here’s one from Anna Serio at Finder.
“If you have the sales volume to support repayment, it’s easy to qualify. And since your loan amount, rate and repayment are based on your Shopify account, there’s minimal paperwork,” she says.
“But while Shopify doesn’t disclose rates or fees, I’ve found that products like this are some of the most expensive types of financing available. And even if you have bad credit, it’s possible to find faster funding options out there. Most ecommerce platforms that offer financing can fund your loan the same day you apply. But it can take as long as five business days to even get a decision from Shopify.”
How do you access Shopify capital?
Shopify Capital is relatively easy to access. Eligible small businesses are contacted by Shopify with an offer letter and application details. Businesses must, of course, first qualify.
Shopify Capital is available for merchants in Canada, the US, the UK, and Australia.
Shopify Capital Eligibility Requirements
Shopify Capital isn’t available to all merchants. The platform uses a selective process to determine eligibility for its financing programs. Here’s how it works:
- Location: Shopify Capital is currently available to businesses in the United States, Canada, the United Kingdom, and Australia.
- Data-driven Evaluation: Shopify utilizes a machine learning-powered underwriting model to assess eligibility based on business data.
- Active Shopify Merchant: To qualify, you need to have been selling on Shopify for at least 90 days.
- Compliance with Shopify Policies: You must be in good standing with Shopify, following their Acceptable Use Policy and Terms of Service.
- Invitation-Only Access: If your business meets the criteria, you’ll receive an invitation via email and a notification in your Shopify admin dashboard with available offers.
Final thoughts on Shopify Capital
Scaling up a business can be tricky. A major issue that many businesses face is finding the funds to finance expansion and this can prevent small businesses from reaching their full potential.
Shopify Capital financing is a relatively simple and straightforward process. It gives business owners the opportunity to grow their business without the headache of lengthy loan applications and business plans.
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