Managing cash flow is one of the hardest parts of running any business. If you’re a Shopify merchant, then you could have an easy solution for this in the form of Shopify Capital.
This is a flexible and convenient type of merchant cash advance based on your Shopify sales performance. It’s a quick way to top up your bank account, and it’s a much easier process than taking out a traditional bank loan.
If you run an eCommerce business on Shopify, here’s everything you need to know about this type of business financing.
What Is Shopify Capital?
Shopify Capital is a financing option designed specifically for Shopify merchants. It offers businesses quick access to funds to help them grow, whether they need cash to buy inventory, launch a marketing campaign, or manage everyday expenses.
Unlike traditional loans from banks, a Shopify Capital loan is based on your store’s sales history and performance on Shopify.
The main advantage of Shopify Capital is its flexibility and ease of access. If you qualify, you’ll see an offer directly in your Shopify dashboard, and you can accept the funding without a lengthy application process.
If you want a Shopify Capital business loan, you can access two types of financing: merchant cash advances and loans.
Merchant Cash Advances
A merchant cash advance is a lump sum of money that Shopify provides to you in exchange for a percentage of your future sales revenue.
You don’t have to worry about fixed monthly payments or deadlines. Instead, Shopify automatically takes a portion of your daily sales until you’ve repaid the advance plus a fixed fee.
How much you repay each day depends on how much you sell. On slower sales days, you’ll pay less, and on busy days, you’ll repay more.
This flexibility can be helpful for any eCommerce business with fluctuating sales because there’s no fixed timeline to repay the advance.
Shopify Capital Loans
Shopify Capital loans are similar to traditional working capital loans, but they’re repaid in a unique way.
Shopify deposits the loan amount directly into your business account. Then, instead of pre-set monthly payments, a percentage of your daily sales is automatically used to repay the loan. The total amount you owe includes the loan and a fixed borrowing fee.
With this business financing option, repayment speeds up when sales are strong, and it slows down when sales are lower. This makes it easier to manage cash flow.
However, unlike a cash advance, the loan does have a set repayment period. All loans must be paid in full in 18 months. If the loan isn’t repaid by the end of this period, Shopify will charge a minimum amount to make sure the loan is paid off in time.
Comparison With Traditional Business Loans
If you’re after business credit, then Shopify Capital funding is a unique option to explore. Here’s how it differs from typical debt financing for businesses.
Application Process
With traditional loans, you usually need to fill out a lot of paperwork, provide business plans, and submit financial records.
The process can take weeks, and approval isn’t guaranteed. Shopify Capital, on the other hand, offers funding based on your Shopify sales history.
If you qualify, the offer shows up right in your Shopify dashboard. There’s no need for a complicated application process.
Eligibility
Traditional lenders often look at credit scores, collateral, and overall business financials to approve a loan.
Shopify Capital looks at your store’s sales performance. This means businesses with lower credit scores or limited history may still qualify as long as they have consistent Shopify sales.
Repayment
A traditional bank loan typically requires fixed monthly payments over a set period. Whether your business is making a lot of money or not, you need to meet those deadlines.
Shopify Capital repayments are more flexible. With both their cash advances and loans, you repay a percentage of your daily sales.
When sales are slower, you pay less. When sales are higher, you repay more. This makes it easier to manage than most small business loans.
Speed of Funding
Getting a traditional business loan can take weeks or even months. With Shopify Capital, if you’re eligible, the funds are usually deposited into your account in just a few days.
This can be a huge benefit if you need quick access to cash.
Loan Amounts
Traditional loans might offer larger amounts, especially for established businesses with strong financials.
Shopify Capital loan amounts are based on your Shopify sales alone. This means the funding may be smaller if your sales on Shopify are low, even if you have other revenue streams from brick-and-mortar stores or other online platforms.
Pros and Cons of Shopify Capital
Shopify Capital can be a great business financing option for Shopify merchants. But, like any financing, it has its upsides and downsides.
Pros
- Fast and easy access to funds: Forget about a lengthy application process. If you qualify, the offer appears directly in your Shopify dashboard. Funds are deposited in just a few days.
- No credit check: Shopify Capital doesn’t rely on your credit score. It’s based on your sales history, making it easier for businesses with lower credit or limited history to qualify.
- Flexible repayment: Repayments are tied to your sales. If you have a slow sales day, you’ll pay less. This makes it easier to manage cash flow compared to traditional loans with fixed monthly payments.
- No collateral required: Unlike traditional business loans, you don’t have to put up any assets or collateral to get funding from Shopify Capital.
- Quick requalification: You can qualify for more funding even before you finish repaying the first round. This revolving access can help to fuel ongoing growth for your business.
Cons
- Limited to Shopify sales: Shopify Capital only considers your Shopify sales. If you have other revenue streams, like physical stores or sales on other platforms, those won’t increase the amount you can borrow.
- Fixed fees: Whether you use a merchant cash advance or a loan, you’ll pay a fixed fee on top of the amount you borrow. This fee can sometimes be higher than interest rates on traditional loans – especially if your sales grow quickly.
- Sales-based repayment: While flexible repayment can be helpful, it also means you have less control. Shopify automatically takes a portion of your sales each day, which could impact your cash flow during slow periods.
- Smaller loan amounts: Because Shopify Capital is based on your sales performance, you won’t be able to borrow as much as you could with a traditional business loan.
How Shopify Capital Can Boost Your Business
Shopify Capital is a valuable tool for business owners who need quick access to funds for growth.
Unlike traditional loans, Shopify Capital is one of the fastest ways to gain funding for your eCommerce business. So, if you need to purchase more inventory, run marketing campaigns, or expand your product line, it’s a convenient solution.
This is especially useful during busy seasons or when opportunities arise that require immediate cash.
Shopify funding can also help bridge cash flow gaps during slower sales periods. It’s a quick and easy way to cover expenses like rent or payroll if your bank balance takes a dip.
Most importantly, Shopify Capital is a flexible way to support your business growth. It’s not as big of a commitment as a traditional bank loan, so it’s the perfect solution for when you need smaller amounts of cash quickly.
Eligibility Requirements for Shopify Capital
While Shopify Capital provides quick and easy funding for Shopify merchants, not all businesses qualify. Here are some of the key factors that determine if your store is eligible for funding or not.
- Active Shopify Store: Your store must be actively subscribed to a Shopify plan. It should also be fully operational for at least three months or have completed its first sale more than three months ago.
- Sales Performance: Your store’s sales history is one of the most important factors. Shopify looks at your sales volume, how frequently you make sales, the total number of orders, and how many of those orders have been successfully shipped. Strong and consistent sales increase your chances of qualifying.
- Customer Engagement: Shopify also considers how engaged your customers are. The number of customers and their interaction with your store can impact your eligibility. This reflects the health of your business.
- Good Standing With Shopify: To be eligible for Shopify Capital, you must comply with Shopify’s Terms of Service. Any violations of Shopify’s agreements, like issues with Shopify Payments or Shopify Credit, can disqualify you.
- Payment History: Your payment history with Shopify is reviewed. Any missed or failed payments for Shopify services, such as Shopify Credit, can negatively affect your eligibility.
- Payment Providers: You must use Shopify Payments or an approved third-party payment provider to be eligible. In some locations, using Shopify Payments is required to qualify for funding.
- Location and Currency: Shopify Capital is available to stores in the United States, Canada, the United Kingdom, and Australia. Your store’s currency must align with your location (eg. USD in the US, GBP in the UK).
- No Prohibited Products: If your store sells prohibited products, like cannabis or drug paraphernalia, you are not eligible for Shopify Capital – even if those products are legal in your area.
- Returns, Chargebacks, and Disputes: High levels of returns, chargebacks, or payment disputes can reduce your chances of qualifying. Shopify looks at how frequently these issues occur when assessing your store.
Final Thoughts
Any Shopify business that needs cash fast can benefit from Shopify Capital. Forget about credit history or fixed payment loan terms – this is a flexible and convenient solution for filling any financial holes in your business.
While it’s useful, just be aware that it’s still a kind of credit line, so it still comes with risk. Ultimately, it’s an ideal solution for a quick bit of emergency capital, but it’s not a form of funding that you should base your business growth on.
But, when you need it, it’s one of the most convenient financing options for any online business.
If your business needs financing, consider the various options we have available at E-Boost Partners. Shopify store or not, we can help you access easy capital to grow your business. Get in touch to get started.
