Shopify Capital : Review, Advantages and Disadvantages

Shopify Capital is the small business financing arm of the popular e-commerce platform Shopify Inc. Small business owners using the marketplace may be eligible for a Shopify loan or cash advance.

However, applications are by invitation only. This means that the company will send you a message when your e-commerce store or business is eligible. Have you received an offer? Want to know more about Shopify reviews? We can help you by answering these questions in the rest of this guide.

So don't hesitate to read on. 

What is shopify capital?

Shopify Capital is a financing service offered by Shopify. This service offers loans and cash advances to merchants who use the Shopify platform for their e-commerce business.

Shopify Capital's loans are based on past sales of the online store. This means merchants can obtain financing without having to provide traditional collateral such as real estate or assets. 

In addition, Shopify Capital also offers a cash advance, which allows merchants to receive a lump sum. This option is often used by merchants to fund growth projects or cover unexpected expenses.

How does Shopify Capital work?

The way Shopify Capital works is relatively simple:

Loan Evaluation: First, Shopify Capital evaluates the loan request based on the merchant's sales data and payment history.
Financing Offer:
Then, if the merchant is eligible, Shopify Capital makes a financing offer in the form of a loan or cash advance. The amount offered will depend on the size of the business and its sales history.
Acceptance of the offer:
If the merchant accepts the financing offer, Shopify Capital transfers the money to their bank account.
Repayment
: The loan or cash advance is then repaid to Shopify Capital on a daily or weekly basis. This is with the repayment fee set in advance.

Shopify Capital rates and fees

Before we talk about Shopify Capital cash advances and merchant loans, you need to understand how the rates work. This is because the marketplace platform does not charge standard interest rates. Instead, it sets loan fees called factor rates.

The factor rate is 1.1 or 1.13. So the rate you receive depends on the amount you borrowed and the strength of your business. Let's say you borrowed $50,000 in the form of a loan that allows you to market.

To calculate the amount of your debt, multiply the amount of the advance by the factor rate. If your factor rate is 1.1, the formula is: $50,000 x 1.1 = $55,000. The total becomes your fixed cost of borrowing and does not change. Now let's look at Shopify Capital notices and how it works. 

Shopify Capital Loans

Shopify Capital business loan amounts range from $200 to $1 million. However, the amount that successful businesses or merchant sites can get depends on their average sales and cash flow. The loan term is 12 months.

The funds are not deposited into your vendor account, but into a business bank account within a few business days after the loan is finalized. You can use the money to expand your business or sell your products on the Internet.

On the other hand, the repayment of the business loan comes from future sales. The company retains a certain percentage of your daily sales with what they call the discount rate. In fact, the average repayment rate is 10%, but it can go up or down depending on your loan offer.

Based on the average, 10% of your daily sales go toward paying off the loan. For successful business loans or e-commerce sites, the 60-day milestones must also be met. You must pay back one-sixth of the loan every 60 days to ensure you are on track for the 12-month period.

Shopify Merchant Cash Advance

Cash advances for the e-merchant work like a business loan. Thus, the loan amounts also increase from $200 to $1 million, and repayment also comes from the remittance of daily sales.

The main difference between the two products is the loan repayment term. Lenders must repay the business loan in 12 months, while merchant cash advances have no defined limit.

You pay back the merchant cash advance from your daily profits or sales. On high income days, you will repay a larger portion of the loan. On low income days, the repayment is less. If your income is $0 per day, you pay nothing at all.

Connect a business bank account

Not all payment methods are eligible for Shopify Capital. You must connect your business bank account in order to receive funds. Since the program is only available to Shopify businesses, it is likely that your account is already linked. You will receive funds to the same business bank account linked to your Shopify business.

What are the eligibility criteria for Shopify Capital?

Are you opening your store on Shopify? Would you like to take advantage of marketplace funding? Be aware that Shopify Capital does not specify the eligibility criteria for a business. Since it's an invitation only, you won't know if you're eligible until you receive an offer. However, we know that Shopify Capital does not have minimum requirements for the following:

  • Credit ratings.
  • Global stock
  • Annual income.
  • Time spent in the company.

Most lenders use these parameters as a benchmark for minimum qualifications. Shopify Capital does not, which is good news for owners considering building an eCommerce site on the platform. If you have a startup, a small business with a low credit score, or a low revenue business, this is also good news for you.

Minimum requirements

There are a few minimum requirements that we can discuss. First, your business must be a Shopify store based in the United States or Canada. Also, Shopify Capital loans are only available in certain states. Merchant cash advances are available in all states, as well as Canada. The company also offers merchant cash advances in the UK.

Your store must use Shopify Payments or another third-party payment provider. In fact, Shopify doesn't say so directly, but it's implied that business owners who use Shopify Payments have a slight advantage against this e-commerce solution.

Shopify Capital Eligibility

The company says that eCommerce sites or startups must be "low risk", but they don't specify what that means. We can conclude that it means being in reliable industries and having a consistent sales history for your store. But the company doesn't publish specific requirements.

You also have to maintain a certain amount of sales volume, but Shopify doesn't define that amount. In fact, Shopify Capital makes it clear that it regularly monitors seller accounts, if you sell on the platform.

States eligible for Shopify Capital business loans

If you own a store on Shopify and are considering a loan to continue selling products, you should first check your state's eligibility. So here's a list of states that are eligible for this program:

  • Arizona.
  • Idaho.
  • Illinois.
  • Indiana.
  • Iowa.
  • Kansas.
  • Louisiana.
  • Maine.
  • North Carolina.
  • South Carolina.
  • Utah.
  • Washington.
  • Wisconsin.
  • Wyoming.

Is Shopify capital a good thing?

For Shopify Capital, you need to know that factor rates are competitive with alternative short-term financial marketplaces. However, they are more expensive than traditional banks. 

The trade-off for the higher rate is the quick turnaround time for financing and the streamlined process to get approval. One way to compare rates is to convert the factor rate to an APR. Let's continue with the example of a $50,000 loan at a factor rate of 1.1 for a 12-month term. 

Again, the factor rate formula is: $50,000 x 1.1 = $55,000, which means you will pay the equivalent of $5,000 in interest on the loan. This equates to an average monthly payment of $4,583.33 over the 12-month term. If you calculate this as an APR , it equals 17.98%.

Shopify Capital Opinion

Obviously, a higher factor rate would mean more interest paid on the principal. If you have received a financing offer, make sure you understand the factor rate and the amount of interest you will pay on the loan.

Shopify Capital's discount rate means you have to budget for the drop in sales. The average rate is 10%, but it can go higher. Also, the discount rate is based on your overall profit or gross sales. 

If your business processes a lot of refunds and returns, the actual amount you pay is much higher than the rate. For example, if you made $10,000 in online sales with a 10% rate, you pay $1,000, leaving you with $9,000 in revenue. 

But if you pay back $2,000, your daily income is now reduced to $7,000. For this reason, after creating a store on Shopify, you need to implement a good SEO (Search Engine Optimization) strategy in order to sell better on the Internet.

Shopify Capital's financing offer

Shopify monitors seller accounts and sends an invitation to apply when you become eligible. Note that receiving an offer does not mean you are approved. Offers are based on pre-qualification eligibility. You will typically receive three offers and select the one that best suits your business.

Once you've selected an offer, Shopify Capital's underwriting team gets involved. At this point, you may need to provide additional information to verify your business.

Shopify Capital's underwriting team may discover issues that disqualify your business. If this happens, the company may make an alternative loan offer or declare that you are not eligible at this time.
If you are approved and accept the offer, the disbursement of funds will take approximately 2-5 business days.

How to access loan offers in the Shopify app

Once you have received your offers, complete the application process by following the steps below:

  • In the Shopify dashboard, go to Settings > Capital.
  • Select"View credit offers".
  • Compare the terms of the three lenders' offers and select"Apply" under the one you want.
  • Review the terms of the Merchant Loan Agreement (merchant cash advance) or Shopify Capital Agreement (business loan).
  • After reviewing the terms and conditions, return to the"Review" dialog box and accept the terms and conditions.
  • Then select"Accept Terms".

After submitting the acceptance requirements, the underwriting process will be executed and will tell you if you are approved. You can then accept the offer.

Shopify Post-Financing Capital

Is Shopify capital subject to a credit report? Actually, the repayment of the short-term business loan and merchant cash advances comes from your daily sales payment. In addition, the payment process is automatic. There is no deadline for repayment of the merchant cash advance. 

Payments fluctuate with your daily income until the full amount is paid off. The 12-month term of the business loan means you may have to make payments on the daily installment if your income falls behind the milestones. You must pay one-sixth of the loan every 60 days to stay on track.

Can shopify capital be paid off early? In the previous example of borrowing $50,000 at a factor of 1.1, the total amount due is $55,000. This means that the total payments for all 60 days must equal approximately $9,167.
If the daily payment over those 60 days does not bring in $9,167, you will need to make additional payments or accelerate to stay on track. Also, once you have paid off 25% of the loan, you can pay the remaining amount in full at any time.

Making payments from the Shopify application

From the Shopify dashboard:

  • Go to Settings > Capital.
  • Select Make a Payment .
  • Choose Custom Amount or Total Remaining Balance.
  • Select Next Step to check the payment amount.
  • If everything is correct, select Make a Payment .
  • Shopify will send a confirmation once completed.

Is Shopify capital a good thing: pros and cons 

Have you just set up a store on Shopify to sell online, and want to take advantage of the Shopify Capital offer? Check out the pros and cons you can expect below:

Advantages:

  • No credit score requirement.
  • Quick turnaround on funding.
  • Large amounts of borrowing.
  • Easy repayment tools.
  • Relatively reasonable rates.
  • Merchant cash advance refunds adjust to your income.

Disadvantages

  • Only available to Shopify users.
  • Application process by invitation only.
  • Eligibility criteria not disclosed.
  • Frequent restitution.

Conclusion 

Shopify Capital is the best for Shopify eCommerce companies that need quick funding to grow their Business. However, Shopify Capital program loans and merchant cash advances are available by invitation only. So, the main concern is whether the cost of funding is worth it for your business. If you are using Shopify and have not received an invitation to apply, you may need to develop your business further before receiving an offer. 

Frequently asked questions 

Is Shopify capital credited?

Yes, Shopify Capital performs a credit check on funding applicants to assess their eligibility and determine the terms of their loan or cash advance. This may include a check of the applicant's personal and business credit score as well as other financial and business criteria such as sales and payment history.

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