Shopify Capital: How To Get Funding From Shopify (+Tutorial)

Shopify Capital: How To Get Funding From Shopify (+Tutorial)

Outline

On average, 29% of startups fail due to running out of cash. The lack of capital is a tsunami waiting to drown your business if you don’t handle it in time. But raising capital, or getting funding, is no joke. But if your business is a Shopify dropshipping store, there’s now an easy and simple solution - Shopify Capital. 

Shopify Capital is the site’s special lending program for qualified store owners to help fund their businesses. In this article, we will walk you through the basics of this program, as well as how to acquire and utilize Shopify Capital loans.

Shopify capital

I. What IS Shopify Capital and How Does It Work? 

Just like a normal bank, the Shopify Capital program doesn’t just give out money to anyone in need. To get funding from Shopify Capital, you must meet the following criteria: 

  • Your store is located in the US (but only a few selected states), Canada or the UK. 
  • Your business has a low risk profile
  • Your store has Shopify Payments or a third-party payment provider enabled
  • Your store processes a certain amount of sales

You will receive an email and see a pre-qualified loan amount on your admin page if your profile is eligible. Should you apply, the application process will take about 2-5 business days, and another 2 days for the money to be deposited in your bank account if you’re accepted.

Shopify Capital offers Loan (or Shopify Capital Loan) and Merchant Cash Advances to eCommerce eligible businesses.

Let's talk about Shopify Capital Loan first.  

A Shopify Capital loan is a certain amount that Shopify lends you to aid your business. It works similarly to a traditional bank loan, where in return for it, you have to pay a fixed borrowing cost. The loan amount plus the borrowing cost is called total owed - what you need to pay them back in order to clear the debt. 

Shopify Capital benefit

What differs Shopify Capital from generic banks is that since it’s a first-party program, the repayment will be a percentage of your daily sales until the end of the 12-month term. Shopify divides the 12-month period into 6 60-day cycles, which they call milestones. You’re expected to meet a minimum payback amount at the end of each milestone. If you don’t, the margin you fail to pay will be deducted from your account. 

So for example, Shopify Capital lent you $1000 with a borrowing cost of $100 and a repayment rate of 10%. That means everyday 10% of your sales will go into repaying this loan, until you clear the total owed amount of $1100 at the end of the 12-month term. At the end of each 60-day milestone, you’re expected have repaid at least $183 (⅙ of the total owed). If at the end of the first milestone you only repaid only $100, the remaining $83 will be taken away from your account. 

Shopify typically offers loan amounts at a minimum of $200 and a maximum of $1,000,000. 

Read more: Top E-commerce Fulfillment Companies in 2021

II. How To Get Funding From Shopify Capital? 

Like mentioned above, if you’re eligible, Shopify will notify you via email and only then can you apply for funding.  

Shopify Capital Eligibilities

From here on, the procedure is very simple: 

  1. From your Shopify admin page, go to Settings > Capital.
  2. Click View funding offers.
  3. Compare the 3 funding options Shopify gives you, then click Request beneath the one you want. 
  4. In the Review and accept terms dialog, review the Terms and conditions, click Accept terms and you’re good to go. 

After that, you can find out how much revenue of each day is repaid to Shopify Capital in the Amount column in the Capital page. 

III. How To Repay a Shopify Capital loan?

 You can repay any amount over $20, or pay the full remaining balance in one lump sum. The repaid amount will be deducted from the same business bank account that’s connected to your Shopify account. 

Here are a few simple steps to repay the loan: 

  1. From your Shopify admin page, go to Settings > Capital
  2. Click on Make a payment
  3. Choose the amount you want to pay
    1. To pay a lump sum, choose Custom amount 
    2. To pay the full amount, choose Full remaining balance
  4. Click on Next step to review the repaid amount 
  5. Click Make a payment 

And voilà, you’re all set. You are now free of debt with a big, growing business.

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IV. Merchant Cash Advances - Another type of Shopify Capital 

What we summarized above seems simple, doesn’t it? However, in reality, there are actually 2 types of Shopify Capital loans. What you’ve been reading about is the default, or rather the more common type of loan - Shopify Capital Business Loan. It’s simple, similar to traditional bank loans, hence the popularity. 

The other type of loan that Shopify offers is merchant cash advances, which are lump sum amounts ranging from $200 and $1 million. The Merchant Cash Advances plan works fairly similarly to the Business loan plan, in the sense that the advance is deposited into your bank account, and Shopify will deduct a certain percentage of your daily sales until the total owed has been repaid. 

The key difference between the Shopify Capital Merchant Cash Advances and the Shopify Capital Business Loan are:

  • Shopify Capital offers Merchant Cash Advances to both United Kingdom (UK) merchants, and Canada + United States. Contrary to Shopify Capital Loan which is only available to Canada + United States merchants. 
  • There is no payment milestones and no fixed term. Shopify keeps deducting a repayment amount until the whole advance and fee are fully paid back. In short, it’s way more flexible than the business loan, which has a 12-month term.

Shopify merchant cash advances

So for example, Shopify offers you $1,000 merchant cash advance with a borrowing fee of $100 and a repayment rate of 10%. So everyday that you make Shopify sales, 10% of it will go into repaying Shopify until you’ve cleared the total owed of $1100. On days you don’t make a single sale, nothing will be deducted from your bank account. Not only is this option flexible, it’s also safe because you can repay as long as your business makes sales. 

V. The Pros and Cons of Shopify Capital 

Though the Shopify Capital program is an excellent solution to access extra cash for a lot of business operating needs, it’s not for everyone. Different business owners have different visions and plans for their businesses, so of course funding options will need to vary from one store to another. 

pros of shopify capital

So before you get into this, it’s good to consider the pros and cons of this cash advance method. Here we go: 

Pros:

  • Reputation: Shopify is a reputable household name, so you can rest assured that you’re going to get a professional treatment. 
  • Ease of application: Applying for a Shopify Capital loan is a very straightforward process. You don’t even need to do it yourself, the company comes to you and tells you how much you can borrow. What’s more, you don’t always need a great credit score like a bank requires, you just need to prove your business is low-risk enough. 
  • Convenient: The program and the repayment method are both first-party, so everything is done exclusively with Shopify, and you don’t need to involve a lot of external devices. 
  • Competitive rates: The borrowing fee Shopify requires is really reasonable, so you can rest assured that they have your best interest at heart. 

Cons:

  • Exclusivity: Shopify Capital is limited to, you guessed it, Shopify users. Technically this isn’t a dealbreaker, but if you’re on another eCommerce platform, it’s bad news. 
  • Unclear eligibility criteria: Only a few aforementioned criteria are specified, other than that, not so much. Shopify only tells you if you’re eligible, so if you don’t qualify, it can be quite frustrating. 
  • Daily deduction from your sales revenue: This repayment method can be demotivating if you’re just an up-and-coming business owner, not being able to keep every precious penny you make at first.

VI. How Should You Spend Your Shopify Capital Funding? 

Getting your hands on a business loan opens up many possibilities, so you’re naturally excited to put it to good use, especially after reading tons of positive reviews. But beware, utilizing your Shopify Capital loan is no simple task. So without further ado, here are some simple tips to make the most of your Shopify Capital loan to push your business to succeed. 

1. Don’t spend it all at once

There are many aspects to running a business smoothly, so it’s not a good idea to put all your eggs in one basket. 

Here you can find a business ideas that help to make money on Shopify from today

2. Improve your marketing game

How can you expect to sell if no one knows about your store? Promoting your business is a quintessential task, especially if you’re a dropshipper. If you’re deep into this business type, you should be aware of your competition - veteran dropshippers who know the ins and outs of promoting their online stores. If you want to start over again, check out our article on how to create an effective content marketing strategy for your e-commerce business.

3. Expand your inventory capacity

With the exception of dropshipping businesses, stocking products is a vital aspect of selling. The bigger your business grows, the more you need to spend on your inventory. So in eventuality, this will be a necessary investment, so save a part of your Shopify Capital loan on this. 

4. Launch a new product/service 

Just like how an investor likes to diversify their portfolio, you should have a wide range of products and services to sell. Not only does this mean that it’s safer since you always have backup plans, it can also increase customers’ loyalty. If customers trust your brand, they would love to buy more products from you, but it’s best to keep the buying interesting with different goods and services, or they will get bored of you. 

What’s more, the market is always evolving, so you need to keep a sharp eye on trends and adapt to the consumers’ ever changing tastes.  

Also, if you do not know how to start, you can start by reading the article about ideal dropshipping niches and products that are rustling up an internet storm

5. Carefully budget and plan how you will spend your Shopify Capital loan by week/month 

Planning is no joke when it comes to operating businesses. You should weigh your priorities and determine which aspect is most important for the time being, and which will be in the next time period. This is the only way to have your Shopify business growing sustainably. 

For example, a business may need to prioritize upgrading their inventory this week, and marketing next week. Decide how much you need to spend each week or month, and don’t touch the remaining balance if possible. 

And a bonus tip: set aside a contingency fund. 

6. Deploy add-ons to leverage your businesses

In addition to loans, Shopify also offers a ton of add-ons to improve your store. Beautify your store page, invest in analytic tools, marketing tools, and so on. Carry out your research well and you will find just about anything that fits your needs: planning, attracting new customers, analyzing what your store is lacking, you name it. 

Doing business will be so much easier with the help of wonderful developers who put their hearts and souls into. 

In a nutshell 

And there you have it, a brief overview of what Shopify Capital is, as well as how to get your hands on and effectively spend Shopify loans. Rest assured that this reputable company always has your best interest at heart, so this funding program will be most helpful to you. 

We sincerely hope that your business will grow successfully. If you ever need suggestions and tips, do check out our blog for helpful articles like this. All the best of luck to you!

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