In business, one of the most challenging tasks faced by entrepreneurs, especially small businesses, is mobilizing capital. Complicated procedures, stringent screening procedures, and high-interest rates are issued that merchants encounter with traditional lending institutions. In light of this, Shopify Capital was born with the mission of supporting Shopify sellers and has accompanied hundreds of thousands of businesses on their development journey.
How well-versed are you in Shopify Capital? Is it easy to apply for Shopify capital and how to qualify for Shopify capital? Let’s find out with BSS Commerce Shopify!
Contents
About Shopify Capital
What Is Shopify Capital?
Before diving deeper into the concept of Shopify Capital, we will introduce a few things about the Shopify platform for those who do not know it well or are hearing about it for the first time.
Shopify can be simply understood as a complete commerce platform that allows users (sellers) to have full authority to start, manage, and develop their online stores. Launched to the public in 2015, Shopify has quickly achieved certain success and become one of the world’s leading e-commerce platforms. Up to now, Shopify has accompanied hundreds of thousands of entrepreneurs, helping them to build more than 4 million business websites and reaching more than 300 million customers.
Understanding the difficulties in raising capital for enterprises, in 2016, Shopify officially launched Shopify Capital – a loan program providing capital for merchants on Shopify. Shopify Capital was created to provide capital solutions and support for business development and operation.
Merchants can use Shopify Capital to invest in marketing, human resources, inventory, etc. to improve and enhance business efficiency. Shopify Capital can be provided in two forms: a cash advance or a loan. The approved method will be evaluated based on location, business size, capital usage, and business history of the business on the Shopify platform.
Shopify Capital is not, however, applicable to all businesses. Currently, it is only available to companies with headquarters in Australia, Canada, the UK, and the US as follows:
- Merchants in the Land Down Under, Australia region can access Shopify loans
- Merchants operating in the Great White North, Canada are supported with cash advances
- Traders in Old Blighty, UK are eligible to receive cash advances
- Traders at Uncle Sam in the United States can have access to cash advances. Merchants in select other states such as Arizona, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, North Carolina, South Carolina, Utah, Washington, Wisconsin, and Wyoming are also supported by Shopify with loans if demand.
The amount of Shopify funding for each business ranges from approximately 200 USD to 1,000,000 USD for businesses in the United States. Loan levels in Canada and the UK are 200 CAD – 500,000 CAD and 250 GBP – 375,000 GBP respectively.
How Does Shopify Capital Differ from Other Forms of Debt?
So, what makes Shopify Capital different from other forms of debt?
For freshly started Shopify shop owners, whose business activities have not yet generated profits and whose credit ratings aren’t stellar, raising capital is exceedingly challenging. We all know that when firms need loans, they must accept a monthly interest rate offered by banks or other lenders and need collateral. The requirement for firms to adhere to a rigorous payback schedule is paramount. They risk further fines if they don’t.
The biggest difference between Shopify Capital and other types of loans is the disappearance of the interest rate factor. Instead of charging your business monthly interest, Shopify takes a portion of your future sales. As a result, a portion of the revenue from your online business will automatically go toward repaying the Shopify Capital fund.
How Does Shopify Capital Work?
Do you understand how Shopify Capital works? We will let you know right now!
In general, only Shopify users are eligible to request Shopify Capital. Typically, Shopify will send you an email letting you know that you’re qualified and inviting you to apply for funding. In the event that you accept the loan proposal, Shopify’s underwriting team will review the application and approve the request.
To be more specific, the following activities happen throughout the operation of Shopify Capital:
- Shopify reviews and checks eligibility: You can check whether you’re eligible to request a loan yourself by logging in to your Shopify account or chatting with the Shopify chatbot to notify that you are interested in requesting support from Shopify Capital. Shopify will check and notify you via email if you are eligible.
- Offer received: After notification that you are qualified to apply for Shopify Capital, existing Shopify offers for businesses will also be sent to you (usually 3 offers with a fixed loan cost, and the remittance rate is 10%. You need to carefully check the terms and conditions, including the funding amount, payout rules, and fixed costs.
- Acceptance: It should be noted that, within 30 days of receiving the invitation from Shopify, if you do not accept the offer, it will be automatically revoked. In case of accept the offer from Shopify, the money will be deposited directly into your Shopify account. From the moment you receive the money, you have full rights to use this money to develop your business.
- Repayment: The loan repayment method will depend on the type of loan you previously selected. We will provide complete information on how to repay the loan for each type of loan later in the article.
- Future Offers: If you successfully repay Shopify Capital’s cash advance or short-term loan, you’re considered a creditworthy borrower. In case the need arises for future loans, you will be eligible for larger incentives, along with the ability to receive higher levels of funding from Shopify.
Two Funding Forms of Shopify Capital
The Shopify Capital program provides capital in two forms: loans and cash advances to sellers.
Shopify Capital Loans
A Shopify Capital loan is a certain amount of money that Shopify lends you in order to support business operations. In essence, it works pretty much like a conventional bank loan. However, the borrower is required to make a fixed loan payment over a certain period of time (also known as the factor rate) to Shopify.
The amount you need to pay Shopify over an agreed period of time is the loan amount plus the loan cost. After fulfilling your responsibility to pay the above amount in full, your debt will be officially cleared by Shopify.
Loans are also offered exclusively to select states in the US. The primary method of loan repayment is a percentage of your company’s daily revenue, and the typical loan period is 12 months.
Shopify splits the twelve months into six cycles, each of which is 60 days long and is considered an important “milestone”. You will be required to give a minimum payback for each milestone, ensuring timely completion. In case you don’t reach the milestone refund amount, Shopify will take the money out of your account directly.
Based on the following example, you can clearly see how Shopify Capital Loans work:
Let’s say, you get a Shopify loan of 1000 USD with a loan cost of 100 USD (the multiplication rate is 10%). As a result, every day you have to provide Shopify with an amount equal to 10% of your revenue that day. The total amount you need to repay is 1100 USD within 12 months.
For each 60-day milestone, you need to pay back at least 1/6 of the total debt, or 1/6 of 1100 USD, equivalent to 183 USD. In the event that at the end of a 60-day milestone, you can only refund 150 USD, the remaining balance of 33 USD will be taken from your Shopify account.
Shopify Capital Merchant Cash Advances
In terms of operating principles, Shopify Cash Advances is quite similar to Shopify Capital Loan – that is, Shopify will withdraw a specific percentage from your daily that process will terminate when the whole amount of the debt has been paid.
However, for cash advances, neither a milestone nor a certain amount must be paid back to Shopify each month. It all depends on your daily sales. Shopify will still automatically deduct amounts based on a fixed percentage of the daily revenue your business generates.
Thus, the amount of money you have to pay depends entirely on whether your sales on that day are high or not. Because of this, cash advance offers far greater flexibility than a loan. The time it takes for you to complete debt payment can be less or more than 12 months, not fixed within 12 months like Shopify capital loans.
For example, you receive a cash advance of $1000 from Shopify, the loan fee is 100 USD, and the coefficient rate is 10%. Every day, Shopify will collect 10% of your revenue until the total amount recovered reaches 1100 USD. If that day, you do not sell any product, meaning revenue is zero, no money will be deducted from your account. In addition, once you have repaid more than 25% of the total debt, you can pay the remaining debt balance in one go to completely end your debt situation.
Another difference in cash advances is the scope of application. This grant is only available to enterprises in Canada and the United States. You can not get Shopify to approve your request for a cash advance if you’re outside of these two regions.
It can be seen that Merchant Cash Advance is not only flexible and safe but also reduces the burden on merchants. The anxiety of having to pay a predetermined amount when the business’s income is not fulfilled is removed when you pay more on days when you sell more and less on days when you sell less.
In general, Shopify Capital is a terrific way to help businesses access new capital for their business operations, but not everyone can participate in this program. So, who will be approved for Shopify’s capital funding program, and how to apply for Shopify Capital? Let’s find out right below!
Shopify Capital Requirements and How To Apply
The Shopify Capital eligibility criteria are requirements designed by Shopify to be referenced when considering and deciding whether a merchant is eligible to participate in the Shopify Capital program. The purpose of this criterion is to ensure that businesses that receive Shopify’s funding will be able to use it smartly, effectively, and most importantly, repay it on time, creating a win-win situation between both lenders (Shopify) and borrowers.
Despite the lack of consistency in qualifying standards across time and place, the following are some crucial characteristics that Shopify frequently considers when assessing businesses:
- You must own your Shopify store and be a registered user.
- You must have a physical presence in one of these 3 countries: the United States, Canada, or the United Kingdom.
- You must use Shopify Payments or another third-party payment provider
- The risk profile of your company must be modest. This implies that your Shopify store needs to be safe from fraud. Unfortunately, Shopify does not specifically state what criteria it uses to judge business profile enterprises.
- Your sales history needs to be stable. This can be considered as the primary variable used by Shopify to evaluate a business’s eligibility. If your store has consistent sales, without sharp revenue declines, your ability to repay debt is higher. As a result, your chances of participating in the Shopify Capital subsidy policy are higher.
Is the purpose of using capital reasonable? – a question that can be asked by Shopify when applying for Shopify Capital. Although you can allocate and spend capital flexibly, having a specific plan for the capital you receive can be an advantage in increasing your chances of winning.
As mentioned earlier, Shopify will notify you of your funding eligibility status via email. Only then can you proactively carry out the sponsorship application process. The simple procedure goes as follows:
- From your Shopify admin, go to Settings, select Funds
- Click View sponsorship offer
- In this section, you will see 3 sponsorship offers that Shopify offers. You can only choose one option. So read carefully, compare the options, and then click Request below the term you want
- The Review Loan Terms and Submit Application dialog box appears. Read the terms and conditions carefully then select Accept terms and you are good to go. Normally, each financing option will include the following 3 terms: Amount received, Total debt, and Repayment fee will be deducted from your daily revenue.
So the Shopify Capital registration process has been completed. Your job now is to wait for approval from Shopify.
Some things you need to keep in mind:
- Before accepting a loan request, Shopify may ask to verify your identity and business details. Therefore, make sure to fully comply with those requirements.
- Shopify’s average response time is 2-5 business days. However, application approval may also take more than 5 business days if you change your payment provider to Shopify Payments when you request funding.
- If your request is approved, the money will be transferred directly to your account. From that moment on, Shopify will officially begin debiting your refund amount.
How to Repay the Shopify Capital Remaining Balance?
Refunding Shopify Capital Loans needs to be done through the following steps:
Step 1: You are on the Shopify admin page. Select Settings > Select Capital
Step 2: In the Capital section, select Payment
Step 3: At Payment, enter the amount you want to pay. You can pay the full balance in your account or customize the amount you want
Step 4: Click Next Step to confirm the refund amount
Step 5: Select Payment. So you have completed the capital repayment process.
You will receive a confirmation email when your repayment is complete.
Follow the steps below to remit the Shopify merchant cash advance:
Step 1: From your Shopify admin, go to Settings, then click on Capital.
Step 2: Click on Remit balance.
Step 3: Review the sum to be remitted. If you want to remit the whole balance, check the authorization box and click Remit balance.
Pros and Cons of Using Shopify Capital
Pros
- No third party: Money will be sent directly to your account by Shopify without any other intermediaries.
- Multiple incentives: There are multiple incentives offered based on your real-time sales. The grant amount can be up to 5,000,000 USD.
- Not affected by credit score: While borrowing money from banks requires a very strict check on the borrower, with Shopify, applying for subsidies is much easier: There is no personal credit check and no compound interest. Even if your credit score is bad, you can still get a grant from Shopify, as long as you prove your business has a low-risk score (according to the required rate).
- Simple application: You can complete your claim in just a few clicks. You don’t even need to apply for a loan yourself because Shopify will notify you when you’re eligible and set your business’s loan limit.
- Fast funding time: It only takes a minimum of 2 days if your Shopify Capital loan request is approved.
- Refunds on Shopify are also very flexible: It does not cause any difficulties for businesses. As you already have a Shopify account in the first place, they will automatically set up a repayment plan and withdraw money from the connected account. If you choose the cash advance method, there is no pressure to pay a specific amount daily or monthly. Instead, the amount you pay is a percentage of your revenue in a day. there.
- Shopify is a reputable company. Therefore, you can rest assured of Shopify Capital’s professional operations and good policies.
- No interest rates or unreasonable loan fees.
- Convenience: The loan program and flight repayment methods are both first-party. All activities are exclusively controlled and performed by Shopify. As a result, you do not need to use external resources.
Cons
- Exclusivity: Shopify Capital is only available to Shopify users. You need to use Shopify to be able to apply for any loans or cash advances. If you are using another similar platform, unfortunately, you cannot apply to the Shopify Capital program.
- Eligibility requirements are unclear: The only conditions announced by Shopify are sales history, location, and a few other criteria. Some merchants could not have access to Shopify Capital’s financing solutions as Shopify only announces loan support for qualified businesses.
- Businesses are not permitted to bargain loan terms or repayment schedules: Unlike other traditional forms of lending, you cannot choose and make loan or payment agreements. You are required to comply with what Shopify requires and provides.
- Daily deductions from your sales revenue: This repayment method can be demotivating and drain your finances if you’re just an emerging business owner because you can not fully keep the money you earn from the beginning until the entire debt is paid off.
- No long-term loans: This causes difficulties for businesses with low time and capital recovery rates. Explain this, Shopify Capital is a short-term loan. If you are unable to repay the loan in full within the allotted time (12 months for Shopify capital loan), you may be charged additional fees, or your Shopify account may be restricted and suspended.
How to Use Shopify Capital Funding Wisely?
Utilizing funding from Shopify properly depends on many factors such as: how much is the loan amount. What is the business goal of the enterprise? What is the average revenue of the business? and many other factors. However, the core principle you need to remember is: “Don’t put all your eggs in one basket”, don’t spend all your money at once.
A good businessman is someone who knows how to set up plans and allocate budgets for weekly/monthly/quarterly expenses. You need to carefully consider and clearly determine the priority order of your business’s activities in the coming time. Remember, save yourself a reserve fund for unexpected unfortunate events.
Each company is an individual with unique demands for growth and change. The great thing is that Shopify Capital funding can be available for many tasks in the business process. Below are some suggestions on allocating capital for business activities:
Human Resource
One of the prerequisite factors that determine the survival of an enterprise is human resources. A team of highly specialized, dedicated personnel with a clear distribution of tasks between departments will help increase the operating efficiency of the business. Using part of the capital to train the company’s staff will contribute to improving productivity and work efficiency from each individual, and department to the entire enterprise.
If you believe that hiring new staff or setting up distinct, specialized departments will be too costly and time-consuming, consider outsourcing. This is an effective and economical solution to fill skills and expertise gaps. In addition to key functions such as CEO, Human Resources Management,… you can completely build your ideal staff team through outsourcing because they are all professionals, skillful, and experts in the industry or field in which you are doing business. Work performance is more optimized and ensures satisfactory results.
Inventory
Product storage is crucial for any firm, except for drop shipping operations. It directly contributes to the growth and development of enterprises. Inventory is an expensive asset, particularly in the e-commerce industry, but if you can’t afford to invest in it, you have nothing to sell.
If you want to expand the scale of your enterprise, the amount of inventory required must be higher. The relationship between these two factors is always proportional to each other. Have you ever found yourself in a scenario where each buyer can only buy a certain number of products in order to ensure the product can reach as many people as possible due to the quantity of goods in stock does not meet the demand? This is especially true during peak periods such as Christmas, Halloween, Black Friday,…, the demand for shopping for goods can multiply several times over.
When demand spikes, use Shopify Capital to keep your company solvent and manage your cash flow by expanding your inventory. This way, you can also lower the percentage of clients quitting or switching to rivals to an optimal level, ensuring revenue and brand reputation.
In other words, the more your business grows and the more customers you have, the more money you need to spend on your inventory. After all, investing in storage is an essential investment. Therefore, set aside a portion of your Shopify Capital grant for this category.
✅ Read more: Best Shopify Inventory Management Apps
Marketing
The success of your business, the volume of sales, and the ability to reach customers all stem from the way you promote and advertise your business and products as well. How can customers know about you and choose to buy your products amidst a sea of rivals, including large businesses and experienced sellers? We can show you invest in an effective marketing strategy with Shopify Capital funds.
First and foremost, let’s invest in your brand identity. You can hire KOLs, KOCs, Influencers, and celebrities to promote your campaigns and products because they are people who have a certain amount of sway on a segment demographic’s psychology and behavior in society.
Thanks to that, your company’s name and products will be more widely known by society than simply posting and selling products. You can also hire professional designers to make your social networking sites and websites more attractive and memorable while still ensuring a good experience for customers.
Second, from Shopify Capital, you can deploy discounts and promotions to attract viewers and promote purchases. This process can be expensive, but it helps keep your customers loyal. Plus, with better prices, you can reach more buyers with lower financial capabilities. What is next?
You can deploy discounts and promotions from Shopify Capital to draw customers’ attention and encourage sales. Though this procedure might be costly, it helps to retain your loyal customers. Plus, with better prices, you may attract more buyers with less financial resources. If your product is good, they will definitely not regret spending money on your product even without discounts or promotions.
Last but not least, taking advantage of paid advertising. With Shopify Capital, you have more money to invest in new marketing assets and conduct A/B testing to see which advertising activities are driving the best conversions. While expanding other advertising channels will also burn your money, it will definitely create a wider spread for your brand to the community.
🎁 For your reference: Top 10+ Biggest Shopify Brands You Can Learn From
Upgrades and Innovations
Along with marketing activities, human resources, and inventory expansion, investing in product and store innovation also plays a crucial role in successful business operations. Some activities you can invest in are as follows:
Upgrade your packaging and labeling: Customers’ initial impressions of your goods and company are formed throughout the packaging and unboxing process, giving you the opportunity to differentiate yourself from the competitors.
In fact, numerous purchases are impacted by product packaging. Particularly in the era of online shopping, when customers cannot directly try and inspect the product, attractive and stunning packaging increases the value of your product. The importance of aesthetics and sensory experience increases significantly.
Research and launch new products/services: Instead of focusing on one or a few certain products, why don’t you expand your scope and diversify your product portfolio? With more choices and meeting the needs of more customers, the number of new consumers you attract and the number of customers you retain will both rise.
It can be explained that once customers spend their trust and love on your brand, they will want to buy more goods from you. Therefore, what you need to do is diversify your products, making them more interesting, appealing, and useful to continue to retain them.
Furthermore, a diverse product network will also lower hazards since it is divided equally among many other products. When a product is out of season, you immediately have other products to replace it to compensate for the decline in sales from that old product.
Cushion During Slow Periods
When engaging in business, you will inevitably experience two points: the peak point – a bustling period with high demand, and the bottom point – a gloomy period with low demand. So, how can businesses survive during the slow period? It’s fortunate that you’ve got the Shopify Capital allowance, you’ve got a buffer for the delay.
The clearest evidence that spending a reserve can be proven is the COVID-19 pandemic. There are many businesses have gone bankrupt. The main reason for this phenomenon is capital used for maintaining the business is not enough. Meanwhile, businesses with large enough reserves were still able to survive through that tough period and are currently in the recovery process.
Shopify Capital fund acts as a “lifesaver” that helps cover your business’s operating costs during a period of time when it cannot generate stable revenue. This capital serves as a great solution, providing you with strong motivation to overcome the difficult period and prepare for the upcoming busy sales season.
In a Nutshell
The Shopify Capital process is relatively simple and straightforward. In addition to promptly meeting the financial needs of businesses, it also opens up many new business development opportunities, providing entrepreneurs the assurance they need to make investments in product development, enlarge the customer base, and build long-term business plans for their organizations.
Hopefully, the above article has provided you with detailed information about the Shopify Capital funding. Wishing you a successful business!
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