Running a small business can be financially challenging. As it stands, 29% fail because they run out of cash. It can also be hard for startups to take their vision to the next level without an injection of funds. However, securing loans or even knowing the best avenue to gain extra money is not so straightforward.
Shopify aims to alleviate financial woes and helps small businesses accelerate their growth with Shopify Capital. A solution for Shopify merchants to get access to loans and cash advances.
Since its inception in 2016, Shopify Capital has given $2 billion in funds to tens of thousands of businesses. The initiative lets Shopify merchants based in the US, UK, or Canada gain access to cash advances. Businesses in the US can also get small loans. The idea is to drive the growth of Shopify merchants by helping them increase the money available so they can hire more staff, increase stock, and fuel marketing campaigns.
Common uses for funds from Shopify Capital (Source: Shopify)
Eligible Shopify merchants can choose between a Shopify Capital Loan and a Shopify Merchant Cash Advance. In the US, they can access anything from $200 to $2 million, $200 CAD to $500,000 CAD in Canada, or £1,000 to £500,000 in the UK. All of this can be attained without a credit check or paperwork. Sounds great, right? Let’s dive further into Shopify Capital to see exactly how it works.
What sets apart Shopify Capital from traditional borrowing entities is that you can’t actually apply for funds. Instead, Shopify makes the first move and will reach out if you’re qualified for their scheme.
What makes a store eligible for Shopify Capital funding? Precise metrics aren’t available publicly, but you do need to meet the following criteria:
If you fit this profile, you’ll get an email from Shopify and a message on the home of your Shopify admin. If neither of these appears, it means your store isn’t eligible, at least not right now. Shopify continuously assesses stores to make new offers regularly. It could be just a matter of time before your store wins approval, so sit tight.
So you’ve got your eligibility message, what’s next? You now need to view your funding options and request the best for your business.
Shopify Capital Merchants Cash Advance (Source: Bucky Wucky)
Within 5 business days, Shopify will let you know if your request has been approved. No more than two days after that the money will be deposited into your account.
The road to getting a Shopify Capital Loan or Merchant Cash Advance is pretty much the same. However, the way they are repaid is a little different. Let’s find out more about each of them.
Just like a traditional bank loan, for a Shopify Capital Loan, you pay a fixed borrowing cost on top of the actual amount you borrow. Shopify will show you your loan amount (how much you are borrowing), and total owed (loan amount + fixed borrowing cost).
There will be a set percentage of your daily sales that will go towards paying back the loan. This differs depending on the amount of money you request and is only deducted on days you make sales. These daily repayments go into action within 2 working days after you receive the loan. Both the total owed and your daily repayment rates are decided based on your store's risk profile. You’ll need to complete repayment within 12 months.
To ensure you’re on track to repay the loan in time, Shopify sets Milestones. These are six 60-day cycles by which you are expected to pay back a set minimum amount of the total owed. If you reach the end of a milestone and the daily deductions from your sales didn’t cover the amount stated, then the remainder will be taken from your bank account.
You can also take the initiative to pay any amount over $20 directly to Shopify at any time so you can stay on course to meeting your repayment deadline. Additionally, once you’ve paid off at least 85% of your loan, you’ll be reviewed for more funding.
The cash advance is a lump sum of money that you receive for a fixed fee. Similar to the loan, Shopify will take a percentage of your daily sales to pay off the money you borrow. The percentage, otherwise known as the remittance rate, is decided based on your store's risk profile. Shopify will begin debiting the daily remittance two days after you receive funds. If there is a day when you make no sales, no money will be deducted.
Once you've remitted over 25% of your total, you'll then have the option to pay off the remaining balance in one lump sum.
Unlike the loan, there are no set monetary targets to meet within a given deadline, nor is there a defined date to repay the total owed. Instead, the deductions continue until the full amount is paid off, making this a more flexible option.
So just how beneficial have these loans and cash advances been to Shopify merchants? The answer is immense! After more than five years of providing funding, Shopify Capital has helped its customers achieve an average of 36% higher sales compared to similar merchants who did not receive financial assistance. Let's take a quick look at how some of these stores used their funding to boost their business.
CUTS
Cuts Clothing is a men’s apparel store owned by Steven Borrelli. The company was in need of funding, but as it was a fairly new business Steven couldn’t secure a loan from banks or traditional lenders. Feeling the urge to scale up his business quickly, Steven turned to Shopify Capital and received $2000.
Over the course of three years, CUTS has obtained ten rounds of funding with the most recent one being $1 million. Thanks to these funds, CUTS has been able to grow by a whopping 200% year on year.
“Traditional lenders want to see several years of business history and growth. But as a young, hyper-scaling business, we couldn’t afford to wait. Shopify Capital helped us rev up our sales.” - Steven Borrelli, CUTS founder
Prelude & Dawn
Prelude & Dawn is a gift shop, clothing boutique, and general store based in LA and online. The owner, Allison Ables, has secured a few rounds of funding from Shopify Capital. They have allowed her to move into a new space, increase and improve the store’s inventory, hire new staff, and invest in marketing. As a result, she has been able to double her revenue.
(Source: Shopify)
Getting financial help through Shopify Capital was a lifeline for Allison as she has not been able to access funding the traditional way due to her credit score.
“There’s no personal credit check. … It’s just your store’s performance. That was what mattered to me because I didn't have a personal credit score to get the amount of funding that I needed” - Allison Ables, owner of Prelude & Dawn
What makes Shopify Capital Loans and Merchant Cash Advances great compared to traditional lenders is that there are no interest fees. There’s just the fixed borrowing amount to take care of which makes their solution very competitive.
The lack of credit checks means Shopify Capital is way more accessible than bank loans and advances. One of the aims of Shopify Capital is to close the funding gap faced by women and minority-owned companies by making finances more attainable. By setting alternative standards for the financial help they’ve successfully provided funds to those who would normally be disadvantaged.
Another plus is that it’s very quick and easy to receive funds from Shopify thanks to the way suitable candidates are identified. AI and machine learning are used to accurately select merchants based on their performance and potential for growth. This proactive approach saves merchants time as it eliminates the lengthy procedures involved in applying for a loan the traditional way. Shopify already has all the information it needs to make a decision, so funds can be accessed with just a few clicks. It’s also really easy to keep track of what you’ve borrowed and how much you need to pay back.
Shopify Capital dashboard
Additionally, Shopify is a reputable company with an A+ rating from the BBB. Merchants can rest assured knowing that they’re borrowing from a company that won’t hit them with any unwanted surprises. Customer reviews about Shopify Capital are overwhelmingly positive, and customer support is available 24/7.
A downside to Shopify Capital is that exactly what is required to be eligible is unclear. If you haven’t been selected but would like to access funding from Shopify, there’s almost no information on what you could do to become eligible. This can cause a lot of frustration and may leave merchants feeling a bit lost and left out.
The passivity of the process can be a little inconvenient for merchants who are in need of financial help sooner rather than later. You have to wait for Shopify to choose you, you can’t approach them which is irritating if you could do with funds soon.
The daily deductions from sales may also be a bit disheartening, particularly if you’re a new business. Seeing your hard-earned cash dip early on is not the most encouraging sight.
It’s also unfortunate that Shopify Capital isn’t available to all Shopify merchants. It's uncertain whether it will open up to those in other regions of the world.
So is Shopify Capital a good lending option? We think so! It opens the doors to growth for e-merchants who struggle to get a business loan through traditional methods. Small business owners can take their operations to the next level with ease and little risk. If you’re in need of a financial boost and have been pre-approved by Shopify for funds, a Shopify Capital loan or cash advance could be the perfect helping hand.
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