Small businesses that run out of money account for nearly 30% of all failures. This is a devastating statistic for entrepreneurs who have invested so much in their passion only to see it end at the hands of the dollar.
Problem is, raising capital can be difficult. Shopify makes it easier to run your business.
Shopify Capital, the ecommerce platform’s own lending program, is available to qualified customers to help fund their businesses. You will need a plan to spend the cash you receive from Shopify. This will ensure that you are able to generate an ROI and not just blow your business dry.
What’s Shopify Capital?
Shopify Capital is a loan program for Shopify merchants located in the United States, Canada and the United Kingdom. It was launched in April 2016. It doesn’t function like a traditional small business loan where you have to pay monthly installments and an additional interest rate. Shopify instead purchases a portion your future receivables. Shopify Capital funds are automatically rerouted as a result of future sales.
Shopify Capital funding is typically between $200 and $1,000,000 USD. However, it’s usually on the lower end. Shopify Capital issued $115.9million in merchant cash advances and loans during Q4 2019, 61% more than Q4 2018. Due to the coronavirus epidemic, many merchants reported smaller loan amounts. The amount of capital offered to repeat borrowers is often higher.
Shopify Capital loans vs. Shopify Capital merchant money advances
Shopify Capital offers funding in two formats: loans and merchant cash advances.
Shopify Capital loans can only be obtained in certain states. The merchant receives a lump sum to cover the loan amount. They then have to repay it over 12 months. Six repayment cycles or milestones are used to repay the loan. These payments are then automatically deducted from your account.
Shopify Capital merchant cash advances can be found more readily in the United States, Canada, and other parts of the United Kingdom. Merchant cash advances are more closely linked to sales. Shopify basically loans you money in return for a percentage your daily sales. Repayment may take longer or shorter depending on how much you owe and what your remittance rates are.
Is Shopify Capital worth it?
Shopify Capital is a good option for some situations, but not for all. Shopify only allows eligible merchants to apply for the loan program.
There are two rounds for screening. Shopify will initially invite merchants to apply. They will notify them via email as well as a dashboard message. Shopify will then screen your application before approval and issuing funds.
You must meet these criteria to be eligible for Shopify Capital
- Shopify – Sell
- You can operate in the U.S.A., Canada, and the U.K.
- Consider yourself a low-risk candidate
- Shopify Payments and a third-party payments provider
- Shopify does not disclose the minimum sales threshold.
Pros and Cons of Shopify Capital
Shopify Capital is a great option for qualified merchants, because:
- It’s simple. Shopify will let you know if you are eligible if they approve your application. Shopify already holds your information, so the application process is simple.
- Repayment has a simple. Shopify will automatically set up the repayment plan for you and take the money from any connected accounts. There’s no need to be concerned about missing a payment.
- Even if you have bad credit, Shopify can still help.
Shopify Capital has its downsides.
- It can be costly. Shopify’s interest rates and repayment plans can be more expensive than other funding options, especially if your business grows quickly.
- Repayment can be confusing. It’s difficult to calculate how much you are borrowing and how much you owe.
- You will lose future revenue.
How to Use Funds from Shopify Capital
Shopify Capital will help you choose the best way to use your money. These key factors include your loan amount, your goals for your business, your average sales, projections, and many other factors. Approval of your application takes between two and five business days. Cash is available in about a day. However, some merchants receive capital within hours. You can put the money to use quickly, regardless of how you apply.
Cushion during slow periods
It can be difficult to pay operating costs during slow times if your seasonal business is not able to plan ahead, especially if there isn’t enough cash reserves. You can get additional funding to help you make it to the next selling season.
For example, a swimwear brand might need support in fall and winter because customers don’t use swimsuits as much. These are periods that you can plan for and allocate Shopify Capital funds accordingly.
Other downturns are possible and unpredictable. The COVID-19 pandemic, for example, is one such. Ecommerce has seen a rise in discretionary spending, which has been good for all. A McKinsey and Company survey found that 27% of consumers intend to cut back on their spending due to changes in income. Another example is a ski-gear company that can be troubled by a snowless winter.
Shopify Capital funds, whether it’s a few hundred or thousands of dollars, can be used to cover operating costs and other expenses that will help you keep your doors open.
Invest in more inventory
Inventory is an expensive but essential asset for ecommerce businesses. You can’t sell anything without inventory. It costs money to acquire inventory. Shopify Capital.
These funds are great for stocking up on ski gear in case of a surge in demand.
Camille Newman used Shopify Capital funds to buy inventory after demand rose because of a successful influencer partnership to promote her brand, Pop Up Plus. There were many people interested in her products and willing to purchase them. She didn’t have enough products to go around.
“If you are a fashion company and you want to buy wholesalers in Los Angeles you will need to be huge to obtain net terms. Newman stated that small businesses must pay upfront. Shopify Capital saved us tremendously. Although I could have put it on my card, I chose not to. It is kept in my savings for an emergency. Everything is kept within my company. We borrowed $8000. The funds were available in my business account within hours. It was amazing!
Increase your advertising spend
Advertising can be a crucial component in promoting your ecommerce store. You can start with only $50 and some Facebook ads. Shopify Capital provides additional funding to help you boost your campaigns.
Shopify Capital is not the best way to kick-start an ongoing advertising strategy. However, it can be a great way to increase reach and add value to existing campaigns.
Here are some ideas: Double down on a successful ad, invest in new creative for A/B testing, or explore a new channel to advertise your current campaigns.
Make custom packaging and labels
The unboxing experience and packaging design are essential for ecommerce brands. These are the first impression customers have of your brand. They also give you an opportunity to stand out among the rest.
A 2016 Dotcom survey found that 40% of customers are more likely to return to their store if the package is gift-like or in a premium package. Only 39% of ecommerce sellers consider changing their primary packaging. This is a huge opportunity for differentiation.
Other packaging materials such as labels, stickers, tissue paper and shipping returns labels should be considered. A Pitney Bowes survey showed that 72% of customers “love” the packaging if it has a returns label. Shopify Capital is here because high-quality packaging costs money.
Shopify Capital can be used to purchase a designer to create your product packaging. Then, you can order custom-branded packaging providers such as Arka or CustomBoxes Now. This is a great use of the funds as you can place one bulk order that you can use for weeks, months or even years.
Start a new venture
What type of venture is it? It all depends on what your business is. You could launch a microsite, develop and test a product, host a pop-up store, or open a warehouse.
Who Can Apply for Shopify Capital Support?
If you want to apply for Shopify capital loans, you must first meet Shopify’s eligibility requirements. Unfortunately, as the Shopify Capital home page informs business owners, not everyone will be eligible for a loan.
Instead of filling out an application and submitting it to a credit check, Shopify will contact you if you are approved for funding. To put it another way, you must wait for Shopify to tell you that you are eligible for funding before you can apply.
You’ll only know if you’re qualified for funding if Shopify sends you a note. The Shopify administrator will send you an email indicating the pre-qualified amounts you are eligible for. You won’t be able to secure a loan if you haven’t been invited to look at funding choices.
Shopify makes its funding decisions based on the following criteria:
Where is their shop located? (Canada or the United States)
How risky is your business (do you think you’ll be able to keep producing money?)
Regardless of whether you’re using Shopify Payments or a third-party payment service.
How many sales does your store process?
Shopify capital loans are currently only available to Shopify stores in the United States. On the other hand, Shopify Capital advances are available in all 50 states and Canada.
If you receive a notice from Shopify stating that you can access Capital, your funds will be valid for 30 days. On the other hand, Shopify is continually re-evaluating merchants to see if they are becoming more or less of a danger.
You won’t be able to request that amount if your pre-qualified amounts expire or if Shopify revokes them. However, you’ll be able to discover if you’re still qualified for any Capital on your Shopify admin page.
Shopify Capital Review: Requesting Funding
Because Shopify contacts you when you’re qualified for funding rather than the other way around, you’d think that anybody who applies for a loan would be approved. That isn’t always the case, though.
The admin team will assess your application for Shopify funding and may decide to lower or increase the amount you can apply for. The admin team can potentially reject your funding request during the underwriting process.
Although Shopify does not allow you to negotiate your pre-qualified amounts, you may be able to acquire additional money in certain circumstances. For example, some merchants will be allowed to apply for more money after successfully applying for funding once. The only way to do this is to wait for Shopify to notify you that extra money is available.
Go to your Shopify admin account, then Settings, then Capital to seek a merchant cash advance from Shopify Capital.
View your funding offers and locate your Shopify eligibility alert.
On the funding option that you’re interested in, click Request.
Before you proceed, double-check the terms and conditions of the funding. For example, you should be able to see how much money you’ll get, how much you’ll have to send back in remittance, etc.
Read the whole Shopify Capital Agreement by clicking the link. Accept Terms is located at the bottom of the page.
The Shopify underwriters will review your application once you accept a Capital amount. Within 2-5 business days, you should receive a response from Shopify. Your cash advance will be deposited directly into your business bank account if you are accepted for funding.
It’s worth noting that switching your payment provider from PayPal to Shopify Payments while requesting funding may cause Shopify to take longer to process your Request.
Shopify Capital Review: Repaying Your Cash Advance
Getting a Capital advance from Shopify is simple, thanks to the lack of a credit check and a straightforward application process. So, how easy is it to repay your debt?
You should have received all of the information you need on how to repay your money in the terms and conditions you agreed to when applying for funding.
One of the most significant advantages of a merchant cash advance system is that you are not required to make a monthly payment. So, there’s no need to find a consistent quantity of money if you don’t have any one month or your sales aren’t going well.
Instead, you strike a deal with Shopify to give them a portion of your earnings. So, for example, if your remittance rate is 10%, you’ll pay $200 when you make $2000, but only $20 on a day when you make $200.
Shopify also allows you to view your payment history and see how much of your outstanding balance is still owed to you. This information may be found on the Shopify Capital page, part of the Shopify Admin page.
The amount of money you need to send to Shopify Capital varies depending on how many sales you generate. Orders placed in your store while in “test mode” will not be applied to the total amount you owe.
A predetermined percentage is applied to the sales proceeds each day to determine how much you owe in remittance. Shopify includes every order marked as paid on your store every day when calculating reimbursement.
Sales apply regardless of where the order came from, how it was paid for, or whether it was later cancelled or reimbursed. Orders placed while Shopify Payments is in “test mode” are the only ones that are not included.
Shopify Capital Review: Customer Service
Shopify Capital makes it simple for businesses to get the funds they need to get started and develop. However, for some businesses, choosing between loans and merchant cash advances can be confusing. Therefore, before you get involved or start creating storefronts, it’s advisable to research the many types of financing available.
The good news is that if you feel overwhelmed, there are resources available to assist you. Email, phone, and live chat are all options for contacting customer assistance. Phone help is also accessible 24 hours a day, 7 days a week. However, you may not always obtain the answers you’re looking for right away.
People’s opinions on Shopify Capital and its customer service are frequently contradictory. Although many customers are satisfied with their service, some claim it is frequently annoying. In addition, some personnel appear to be following a script rather than providing personalized assistance. In some cases, this results in a frustrating experience similar to what you’d get from Amazon or eBay.
One plus is that Shopify has a large community to which you can turn for additional support if the company itself cannot assist you. In addition, there’s a rich knowledge base with several articles to assist you in getting your business off the ground. Unfortunately, Shopify provides less information regarding Capital than it does about starting a business. However, answers to a few questions can be found here.
Why Would Small Companies Use Shopify Capital?
There are numerous business loans and funding choices accessible for firms and companies. However, getting the financing, you need as a small business owner isn’t always easy. Before handing over any money, banks and traditional lenders frequently want to see proof that you’ll be able to produce a steady profit.
Applying for a traditional loan can be a lengthy and time-consuming procedure that requires a person’s or company’s credit rating to be excellent. Things get even more complicated if you run a business that is a separate legal entity from you because that firm also requires a solid credit score.
Banks are frequently hesitant to grant small business loans as well. This is due to the extensive verification that must take place before a loan may be issued. As a result, traditional loans are rarely the greatest approach to getting more income in the end. Unfortunately, most businesses will not be able to launch on their own due to a lack of funds.
When you’re out of ideas, programs offered by eCommerce platforms like Shopify could be a good alternative to funding. These classes are beneficial whether you’re trying to cope with the stress of functioning after COVID-19 or want to get your company up and running for the first time.
Because Shopify is online, it offers a simpler product than most banks, but it also has several other significant advantages. Because Shopify may utilize information about your company to determine how much you should be able to lend, the application procedure is frequently quick and uncomplicated. There are no deadlines or minimum repayments to worry about at the same time.
Alternatives to Shopify Capital
If you don’t want to transfer your website to Shopify and aren’t a Shopify user, there are still some additional options to earn money from other sources. The two most popular options are PayPal and Square.
Similar to Shopify, PayPal offers small business loans for a set price. You should be able to acquire an advance if you utilize PayPal to accept credit and debit card payments on your website. Approval and the quantity of money you can borrow will be determined by your sales, according to PayPal. You won’t have to worry about credit checks because of this.
You won’t have to stress making consistent payments every week or month, as you won’t with Shopify. Instead, PayPal deducts the amount you owe from your sales each month. In addition, you provide PayPal with a minimum of 10% of your earnings every 90 days or so. You must follow these guidelines and pay at least 10% of the total loan amount every three months.
If you’re authorized for PayPal Capital, you’ll be able to borrow up to 18 per cent of your annual sales transactions. The size of the loan, the proportion of daily sales, and the sales history will all influence the fees you pay. In addition, you can make manual payments, and you may need to do so depending on how rapidly you pay off your debt.
Square, like PayPal, is an online and physical platform that allows businesses to collect money from clients and customers. The business is well-known for its high-quality services and point-of-sale technology. Square has you covered if you need to manage an online business with offline aspects, such as pop-up shops. Square’s services are extremely comparable to those of Shopify and PayPal.
Square’s Capital solutions, likewise, are identical to those given by PayPal and Shopify. Any business that uses Square’s transaction or point-of-sale services is eligible to join the Capital program. Square, like Shopify, will evaluate your business and give you a loan based on the number of sales transactions you process through Square.
There is a single flat cost, and you can have the money within a day of being authorized for the loan. This makes it easy to obtain the funds you require quickly. Sellers eligible for a loan will be contacted through email or via their admin account, similar to Shopify.
Depending on what you need for your business, you’ll be able to choose from a variety of loan amounts. Several factors determine the amount you must pay for the flat charge. First, the loan amount will determine the amount of your charge and the percentage of sales to Square.
It’s worth noting that, unlike PayPal and Shopify, Square considers your credit score when determining how much money you should receive. This could mean that getting a loan or advance from Square is more difficult than getting one from Shopify.
Shopify Capital is absolutely something worth considering.
If you accept the company’s offer, Shopify Capital can provide you with an easy option to borrow money quickly and then pay it back without any worry or pressure. However, it’s important to remember that any loan or merchant cash advance has some risk.
If you have good credit or your firm is currently doing well, you might be able to acquire the funding you require elsewhere. However, if you don’t have excellent credit or are concerned about a lengthy application procedure, Shopify is probably better.