In order to ensure the stable operation of the store, nothing is more important than stable cash flow. In this case, the right e-commerce funding can provide the working capital you need to grow your business.
Shopify Capital is a good choice for merchants running businesses on Shopify who are looking for cash flow. In the following article, we will introduce all the operations related to this funding program that you should master, and provide you with a reasonable operation guide for your future funding operations.
What is Shopify Capital?
If your online store business is in a period of steady growth, you will inevitably face a cash flow gap, which will affect your formulation of store-related strategies. If you have the right e-commerce funding to provide you with stable financial support, you will be more confident in the future development of your store.
Shopify Capital is a business financing program offered directly by Shopify. For easier understanding, you can refer to similar Amazon loan settings. According to Shopify, pre-qualified sellers with any funding needs related to their business can use Shopify’s small business loans and merchant cash advances.
Not all buyers have access to borrow money, and Shopify Capital funding is only available to sellers who have been pre-qualified on the marketplace.Shopify Capital evaluates merchants based on their store’s location, history, usage, and interaction with the Shopify platform.The Capital page in the Shopify admin lists the qualifications required to apply.It is worth noting that the borrower needs to pay a fixed borrowing fee when receiving a sum of funds.
How does Shopify Capital work?
Merchants first need to pass an eligibility check. You can log into your account to check eligibility, or you can turn to a Shopify bot and let them know you’re interested in applying and they’ll check to see if you qualify. Typically, qualified sellers can receive between $2 million and $5 million in funding.
Next, the platform will send you a quote. According to Shopify, pre-qualified sellers can choose the one that best suits their needs from three financing offers they receive. Please note these offers are non-negotiable, you can only choose to take them or leave them.
If you receive an offer from Shopify Capital, you should carefully review the terms and conditions, including funding amounts, repayment terms, and fixed fees. You can make a reasonable choice by weighing your sales volume against the total loan amount you can afford.Once you accept the offer, funds will be deposited directly into your Shopify account.
The total payment you’ll make under your Shopify Capital loan agreement is the loan amount plus your fixed borrowing costs.The platform will automatically withdraw based on a percentage of your daily sales.
If your sales increase more during this period, you will likely pay off the loan faster. But if you have no sales revenue for a period of time, you won’t be able to pay it back. Therefore, before borrowing money, you need to have a relatively objective estimate of your sales in the future.
If you want to check your repayment status, you can view and manage daily sales revenue, remaining balance, and payment history directly from your Shopify account.
Shopify Capital has set up different levels of reward systems and will send certain discounts to merchants with better credit. If you repay your Shopify Capital cash advance or payday loan on time and your store is in good health, Shopify Capital will offer you a future discount on your future repayments, and you may be eligible for higher amounts of funding in the future.
Is Shopify Capital Right for You?
Whether or not to apply for Shopify Capital actually depends on your store type and business situation.
For small and medium-sized businesses, Shopify Capital has the advantage of being more accessible and faster than traditional borrowing. This means its application process is quick and funding can be obtained in a short time. In addition, Shopify Capital’s repayment policy is flexible, and you can choose to pay part of the fee monthly or a percentage of daily sales, which greatly reduces the pressure for businesses with fluctuating sales.
Businesses who need short-term borrowing will find Shopify Capital fast, convenient, and affordable. However, businesses need to make prompt repayments as the loan can become quite large over time in the long run. It is recommended that merchants carefully calculate their monthly sales before borrowing and choose an appropriate borrowing plan to avoid affecting the normal operation of the store.
Taken together, Shopify Capital would be an ideal choice for the following merchants:
1. Start-ups, those who need start-up capital to open an online store and are just starting to generate revenue.
2. Growing companies need more funds to support their expansion into other businesses.
3. Seasonal business, meaning sales fluctuate throughout the year with seasons or holidays.
4. Businesses with limited credit history that find it difficult to borrow money from elsewhere.
5. Businesses with rapidly changing inventory need funds to quickly buy and sell inventory before it becomes obsolete.
Pros and Cons of Shopify Capital
|Pros of Shopify Capital
|Cons of Shopify Capital
|Easy to apply, fast funds: Once you qualify for Shopify Capital, you can get funds without paper checks, tax checks, etc. No personal guarantee or credit check required.
|Strict system. Shopify Capital evaluates Shopify businesses. This means that only eligible businesses can use it, and strict rules need to be followed.
|Flexible repayment terms: Shopify Capital’s repayment terms are 12 months. This gives businesses with fluctuating cash flows the flexibility to repay directly from sales revenue.
|The offer is valid for 30 days. If the offer expires, you will have to wait until you are notified again before you can borrow.
|Seamless experience: When you use Shopify Capital, you’ll find borrowing money from Shopify very convenient as it provides a one-stop shop.
|Limited scope of borrowing. You can get a limited amount to borrow, usually only $200 to $2 million.
|Competitive short-term borrowing rates. Businesses will find that the short-term borrowing rates provided by Shopify Capital are very competitive compared to other platforms.
|Passive application. Shopify has the initiative. Under normal circumstances, you will not be able to actively apply for funding or have control over your application.
What are Shopify Capital eligibility requirements?
In fact, your eligibility for Shopify Capital funding requests and pre-qualified amounts is evaluated based on your past sales history in Shopify and your interactions with the Shopify platform. While a personal credit check is not required, your business credit history may be reviewed in certain circumstances. Shopify Capital’s eligibility requirements are both public and private. You can check for yourself and some are determined by Shopify in its sole discretion.
Public requirements include:
•You must have Shopify Payments or a third-party payment gateway as a minimum requirement.
•You must have a Shopify store that has been active for at least 3 months. You can check this yourself in the account background.
•The restrictions on store location are very strict. Your business must also be located in the United States, Canada, Australia, or the United Kingdom.
In addition to the public Shopify Capital application requirements listed above, Shopify Capital uses AI to consider sales volume, payment disputes and chargebacks, your interactions with the Shopify platform and store, buyer interactions and failed billing attempts, and store performance when determining eligibility. and credit history and other factors. These factors can reflect the risk level of your business on Shopify and whether you will be able to repay the loan in the future.
Shopify Capital sets up a systematic underwriting process for funding requests. If you don’t receive an offer, your store is not currently considered eligible to apply for funding through Shopify Capital. If you receive a notification on the home page of your Shopify admin and receive an email, you are considered eligible to borrow money through the platform.
Some merchants may wonder why Shopify doesn’t directly explain its eligibility criteria. Under Shopify Capital, eligibility and amounts offered are based on Shopify’s scientific and impartial assessment of your online store’s risk profile.
How Much Money Can You Get from Shopify Capital Loans and Advances?
There are several factors that may affect the amount of money you can get from a Shopify Capital loan or advance. This can range from a few thousand dollars to millions of dollars, but some businesses may be eligible for more. In fact, the size of your business, sales volume, and the purpose of the loan play a big role.If you have consistently high sales and a good credit history, you can expect to get a larger loan limit.
When you apply for a loan, repayment considerations play a large role in how much money you qualify for. You will need to justify the amount by detailing how you plan to use the funds, based on the specific amount you are applying for. The more knowledge you have about your business’s financial health and ability to repay, the better it will be in convincing Shopify that you have the ability to repay a loan or repay an advance capital.
It should be noted that unlike other traditional methods of borrowing, Shopify does not support lending against equity in your business. In other words, you don’t need to try to trade a percentage of your company for a Shopify Capital loan or advance.
What Are the Fees and Costs of the Shopify Capital Program?
The fees and costs associated with Shopify Capital vary depending on your specific financing options and business situation. Here, I’ll explain the potential fees and costs associated with the Shopify Capital Advance and Shopify Capital Loan.
Flat fee of Shopify Advance Funding.
Instead of charging interest, Shopify Capital charges a flat fee for upfront payments. The cost starts when you accept financing and remains the same no matter how long it takes to pay off.
The fixed fee structure provides transparency into upfront costs. Let’s say you receive a $10,000 Shopify Capital Advance, the flat fee charged is $1,500. In this case, you would repay a total of $11,500.
Shopify Capital Loan Cost
#1: Interest Rates
You pay an interest rate based on a fixed rate on the loan amount, which is usually fixed and specified in the loan quote.
#2: Loan Term
The loan term is stated at signing and you will be required to make regular installment payments. Loan terms may vary depending on the circumstances.
It’s worth noting that one of Shopify Capital’s strengths is its high level of transparency. There are no hidden fees, application fees or risks of early repayment penalties.
Daily or weekly repayments
Advances and loan repayment structures are designed to align with your business’s daily or weekly sales. A percentage of daily or weekly credit card sales processed through Shopify Payments will automatically be deducted to repay the advance or loan. This means your repayments will be lower during periods of slower sales, helping with cash flow management.
You have a detailed understanding of the specific terms of the financing offer you are accepting, which may include additional terms or conditions specific to your borrowing offer. That said, exact costs may vary.
How long does it take to receive Shopify Capital?
Many merchants may be eager to receive loans because they may face a large funding gap, and want to know how quickly Shopify Capital’s funds are processed.
If you receive a message from the platform after applying for a Shopify Capital loan, you may be eligible for Shopify Capital. Based on your application amount and business status, you choose the quote that best suits your business. Depending on the platform rules, you will know within 2-5 business days whether your loan has been approved. Obtaining funds is relatively fast. Once approved, you will receive your funds within 2-5 business days.
Shopify Capital Alternatives
There are many financing options for businesses. Alternative financing options such as crowdfunding, peer-to-peer lending and fintech platforms are very popular.Many financing solutions for online working capital are specifically designed for e-commerce businesses. Their terms are often seen as fairer and more flexible than traditional lending platforms.
Below are 5 more popular Shopify Capital alternatives on the market that we have prepared for you.
SellersFi provides working capital, invoice factoring, invoice flexibility, term loans and other services to businesses with interest rates from 1% to 25% and terms of 3 to 12 months. It ranges from US$5,000 to US$10 million. Bank of America offers secured and unsecured lines of credit and term loans starting at $1,000.
Amazon Lending offers term loans, interest-only loans, lines of credit, and merchant cash advances, and its borrowing limits is up to $5 million, which vary by product.
OnDeck includes lines of credit and term loans. It ranges $5K – $250K with repayment terms of 12 – 24 months. Kapitu offers lines of credit, invoice factors, purchase order financing and working capital. It is more up to $500,000 with factor interest rates up to 1.25 for up to 5 years.
As you research alternatives, you should learn to consider your funding requirements, including years in business, income levels and funding levels. You can ask yourself how much are you willing to pay to borrow money? What return do you expect to receive from your investment in borrowing costs?
Shopify Capital Customer reviews
Many users have posted online about their experience with Shopify Capital, with some praising its speed and timeliness, but others complaining about the long and unstable repayment period.
For negative renews, a User has complained about the high risks associated with personal guarantees. And when he fails to repay on time, the platform will charge a penalty, which makes him very distressed. The number of times the platform collects repayments is unstable, sometimes several times a day. Another user felt that the long repayment time was intolerable. When the platform informed him that he had obtained the right to borrow money, he refused.
For positive news, some users thanked Shopify Capital for helping the store operate smoothly at a critical moment due to its fast and easy application process. Additionally, there are no hidden fees on the platform, and this transparency also gives him a lot of traction. Although the platform charges a certain interest rate, some users also believe that the ratio is within a reasonable range. Some users also praised the sales-based repayment method for reducing his stress to a certain extent, and the platform is simple to operate and can often be paid off within a few months.
If you need funds to support future store development, Shopify Capital is one of the options for you to obtain additional funds. The flexibility of borrowing will allow you to move your business forward the way you envision it. If you have any questions during specific operations, you can refer to the guidance in this article.
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