Overview
The bottom line:
Shopify Capital is an option for Shopify sellers who are looking for quick financing to cover gaps in cash flow, manage inventory, hire employees and more. But lack of transparency makes it hard to compare with other options.
Pros & Cons
Pros
Quick, easy application and funding process.
Wide range of funding amounts available.
Repayment terms structured with your level of daily sales.
Easily monitor repayment progress in your Shopify admin dashboard.
Does not require a personal credit check.
Cons
Only available to Shopify sellers, by invitation.
Eligibility criteria and terms are not transparent.
Daily debits from your Shopify sales revenue.
Shopify Capital is a business financing program offered by e-commerce platform Shopify to qualified sellers via invitation. Currently, the only financing product Shopify Capital offers is a merchant cash advance.
Unlike a small-business loan, a merchant cash advance provides a lump sum of cash in exchange for a set amount of your future sales revenue. You’ll also pay a fee, which is included in the total amount to be repaid. Shopify Capital offers two different fee structures to choose from. The advance is deposited into your business bank account, and Shopify deducts a fixed percentage of your daily sales until the advance and fee have been collected.
We’ll start with a brief questionnaire to better understand the
unique needs of your business.
Once we uncover your personalized matches, our team will consult you
on the process moving forward.
Consider Shopify Capital if you:
Are a Shopify seller. Shopify Capital loans are underwritten based on Shopify seller data points, so you are required to be a seller on Shopify’s platform for at least 90 days. Need fast financing. Most applications are reviewed within one to three business days, but you must receive an invitation to apply. If approved, funds may be deposited into your business bank account within a couple of business days. But if you have the time to explore other options, you should. An MCA is likely to be one of the most expensive financing options.
Are having trouble qualifying for other forms of financing. Shopify Capital does not run a personal credit check or look at personal financials, which may be barriers to traditional forms of financing. The tradeoff, however, is high fees, short repayment terms and daily payments that can put pressure on your cash flow.
| Loan amount | $2,000,000 maximum. |
| Estimated APR range | Undisclosed. |
| Fees | Your choice of a fixed fee or a monthly fee (see explanation and example below). |
| Terms | 18-month maximum. |
| Repayment schedule | Daily. |
| Funding speed | As fast as two business days after approval. Approval generally takes one to three business days. |
Shopify Capital’s fee structure explained
Shopify offers two different fee structures for repaying your advance, and you can choose the one you prefer. One principle applies to both, though: repayment amounts fluctuate with your sales. If your sales increase, you pay more and repay the advance faster. If sales decline, your payments will decrease, extending the repayment period.
This option affords you the benefit of knowing upfront exactly what the total cost of your advance will be. Shopify Capital will charge you a fixed fee in the form of a percentage of your total advance amount. You’ll repay that fee plus the amount you borrowed through your daily card sales.
This option essentially rewards speedy payoff. Shopify Capital will charge you a set fee each month it takes you to pay off the advance. So, if you can pay it off in full within three months, you’ll pay less overall than if it were to take you nine months.
Here’s a breakdown of how these options compare, using the example Shopify Capital lays out on its help center page explaining the fee structures:
Advance amount: $100,000
Fixed fee: 13% of $100,000 = $13,000
Monthly fee: $1,400
| 3 months | $13,000 | $4,200 |
| 6 months | $13,000 | $8,400 |
| 9 months | $13,000 | $12,600 |
| 12 months | $13,000 | $16,800 |
How to choose the cheaper option for your business
1. Calculate the break-even time, or, the number of months at which the two options would cost you the same amount. Here’s the formula:
Fixed fee amount / Monthly fee amount = Break-even time
$13,000 / $1,400 = 9.286 months
2. Estimate your repayment time.
3. Run the formula to determine whether your estimated repayment time is more or less than the break-even time.
If your estimated repayment time is less than the break-even time : Choose the monthly-fee structure.
Monthly cost at 9 months: $1,400 x 9 = $12,600
Fixed fee: $13,000
If your estimated repayment time is more than the break-even time : Choose the fixed-fee structure.
Monthly cost at 10 months: $1,400 x 10 = $14,000
Fixed fee: $13,000
Where Shopify Capital stands out
Shopify Capital uses two phases of underwriting, one of which is a pre-qualification stage, which is why it’s an invitation-only form of financing. The pre-qualification means that the process can move pretty quickly once you decide to apply.
The company typically reviews applications within one to three business days of being submitted and deposits funds directly into your business bank account within a couple of days upon approval.
Lenient eligibility requirements
Shopify Capital underwrites based on your business’s revenue and doesn’t factor in things like personal credit score or collateral, which can be barriers in traditional forms of financing.
If you end up getting a loan from Shopify Capital, you can manage repayments and even apply for additional financing from your Shopify dashboard. Having everything in one place may be ideal for some business owners.
Where Shopify Capital falls short
Similar to Amazon Lending, Shopify reviews your business activity on their platform and makes a decision to invite you to apply for financing. Without this invitation, you can’t apply for funding yourself. Shopify doesn’t disclose a lot of important information like interest rates, term lengths and additional fees. The company is also vague about how it makes financing decisions. That can make it difficult to compare financing offers and make the best decision for your business.
Repayment is structured to fluctuate with your business’s daily sales. This means, generally, that you won’t be charged on days when you have no sales. However, there is some fine print around meeting certain minimum repayment thresholds by certain times, so read your agreement thoroughly.
This kind of repayment structure also means that if you have higher sales days, the portion Shopify takes is bigger. That can make it difficult for your business to grow, especially if you have a lot of other fixed expenses.
Shopify Capital requirements
Financing through Shopify Capital is by invitation only, which means Shopify will let you know through your account if you’re eligible for a merchant cash advance. Although there are no rigid requirements, here are a few basic details you should know.
Your store must be located in the U.S., Canada, Australia or the U.K.
You must have consistent Shopify sales and have been selling on Shopify for at least 90 days.
As a Shopify user, you must be in compliance with Shopify’s terms of use and acceptable use policy.
Alternatives to Shopify Capital
OnDeck
OnDeck - Line of credit
OnDeck is an online lender that offers fast funding for small-business owners, especially those who are having trouble qualifying for traditional forms of financing. It offers business term loans as well as business lines of credit, and funding in some instances may be available the same day you apply and are approved. iBusiness Funding
iBusiness Funding - Online term loan
iBusiness Funding offers online term loans for established business owners with good credit who are still prioritizing a quick, streamlined option. Qualifications include a minimum of 24 months in business, a 660 personal credit score and at least $50,000 in annual revenue. Funding is between $25,000 and $500,000 and terms range between 6 and 60 months. Fora Financial
Fora Financial - Revenue advance
Max Loan Amount
$1,500,000
Fora Financial offers business loans and merchant cash advances up to $1,500,000. Applicants may qualify with credit scores as low as 570, at least 6 months in business and a minimum of $20,000 in monthly revenue. Fora’s merchant cash advances are repaid through a fixed percentage of daily or weekly sales, and their whole process from application to funding takes between 24 and 72 hours. A version of this article originally appeared on Fundera, a subsidiary of NerdWallet.
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