Financing is a major hurdle faced by most small to medium businesses at any given time. With the world reeling under the effects of the covid-19 pandemic this hurdle has turned into a hill. It is now more important than ever to be well informed about different financing options available to businesses. Ecommerce companies are not immune to this trend. Be it for acquiring new customers, launching new products, scaling their online business or hiring new employees. E-commerce companies need access to capital. Ecommerce platform Shopify, having identified this business need, provides shopify merchants with a special financing option called Shopify Capital. Shopify Capital offers financial assistance through a cash advance or loan. This financing option is currently available only to shopify store owners based in the United States and Canada. However, e-commerce business owners based in the UK could still be eligible for a cash advance from Shopify via YouLend.
How does Shopify Capital Work?
You can't really "apply" for financing from Shopify Capital unless they want you to. Shopify studies the financial health of your store and informs you of eligibility if you meet their standards. You shall be informed of the same via email. You should also be able to see your pre-qualified amount in the admin section of your shopify store. The application process begins after you click on apply. Also, Shopify loans are accessible to shopify store owners based in only a few select US states. Store owners in the rest of the US states and Canadian merchants can only use Shopify Capital’s merchant cash advances. Shopify capital loan amounts vary between $200 and $1,000,000 USD. Shopify Capital merchant cash advances vary between $200 to $1,000,000 USD or $200 to $500,000 CAD. The amount to remit back to Shopify and the remittance rate depends on the risk profile of every Shopify merchant.
Why is this better than other financing options you ask?
The biggest advantage of Shopify Capital is its hassle free and quick approval process. Once a Shopify merchant expresses interest in Shopify Capital and submits his application. It gets processed in about 2-5 business days. And once approved the merchant can expect the money in his bank account within 2 business days.
Conventional financing options like availing business loans from banks is a cumbersome process. You’d need to meet a variety of prerequisites including a collateral and a healthy credit score. The paperwork and red tape involved make the process lengthy and elaborate. With Shopify Capital you get access to a small business loan or cash advance without any collateral or credit check. Additionally, there is no late fee or prepayment charge.
Another beneficial aspect of Shopify Capital is its easy repayment or remittance method. Repayments are made through a fixed percentage of a store's daily sales. Until your entire total to remit is repaid. This means the repayment is made in small amounts and is seldom burdensome. Each of which can be easily followed on the admin section of your Shopify dashboard.
What to be wary of
If you do find yourself eligible for financing from Shopify Capital. Chances are you'd still have trouble securing your desired amount of funding. Online store owners of often complain about inadequate sums of money being offered. This is because Shopify determines the funding amount based on your risk profile which is non-negotiable.
There is no interest rate associated with your financing from Shopify Capital. Just a predetermined fixed cost over your borrowing. Past users of Shopify Capital have found this cost to be a bit too high.
Shopify Capital is a pleasantly transparent and highly beneficial service. It is however our recommendation that you consider different business financing options. Including a traditional bank loan before settling on Shopify Capital. The reason we say so is the high remittance amount you would eventually pay back to Shopify. Financially healthy businesses could be offered lower interest rates by banks. It’s always a best practice for small business owners to consider every option. Be sure to fully understand the financial liability associated with each option as well. But, in case you’re short of options and find yourself eligible for Shopify’s financing program. It’s definitely a good choice.
It is quite clear from this article that Shopify Capital isn't a solution for everyone. Not every Shopify store will fulfill the selection criteria set forth by Shopify Capital. There are plenty of e-commerce businesses based outside of North America and the UK who need funding too. Below is a list of alternatives worth looking into.