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Shopify Capital Review

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Date Established
2016
Location
Canada

Pros

  • Suited for small business
  • Relaxed borrower qualifications
  • Competitive terms and fees
  • Easy application process

Cons

  • Only available to Shopify users
  • Potentially expensive fees

Overview

Shopify is widely regarded by eCommerce experts and business owners alike as one of the best shopping carts available, and we recommend it highly here at Merchant Maverick. This eCommerce solution is incredibly easy to use and provides nearly everything the average small business needs to run an online store.

But if you didn’t already have enough reasons to use Shopify, here’s another one: users may be eligible for hassle-free, relatively low-cost business financing.

Introduced mid-2016, Shopify Capital is a business finance program similar to Square Capital or PayPal Working Capital. Because Shopify already has access to information about your business and revenue, they are able to speed up the application process and provide lower cost business financing than you may be able to get elsewhere.

Shopify Capital offers short-term business funding in the form of merchant cash advances and short-term loans. Although these financial products differ by technicalities, you will see little difference between the two in practice. Head down to the Terms & Fees section below to learn about what to expect when you receive a loan or advance from Shopify.

Shopify Capital is still in its infancy. Although some have expressed trepidation, reception thus far has been positive overall. Furthermore, although especially creditworthy borrowers might be able to find better rates elsewhere, Shopify Capital’s rates and fees are relatively low-cost and competitive with similar funders.

Have you received (or hope to receive) a Shopify Capital offer? If so, is this the right business financing for you? Keep reading to find out!

Services Offered

Shopify offers short-term business financing.

Borrower Qualifications

To qualify for Shopify Capital, you don’t need to meet any specific qualifications regarding time in business, revenue, or personal credit score:

Time in business:N/A
Personal credit score:N/A
Business revenue:N/A

Instead, Shopify is more interested in your cash flow. To be eligible for funding, you’ll need to:

  • Be located in the United States
  • Have Shopify Payments enabled
  • Have a profile that is considered low-risk
  • Process a certain amount of gross merchandise volume (GMV)

Be aware that you cannot apply for Shopify Capital — instead, Shopify will monitor your account and alert you if you’re eligible. For more information, check out the Application Process section below.

Terms & Fees

These are the terms and fees for Shopify Capital:

Borrowing amount:$400 – $500,000
Term length:No maturity date
Factor rate:x1.1 or x1.13
Origination fee:None
Effective APR:Learn more
Collateral:None

Shopify Capital financing is in the form of a short-term loan or a merchant cash advance. Head over to our explanation of merchant cash advances or short-term loans for more information on these financial products. However, in practice, there is very little difference between the two — the only difference is that you have to meet 60-day repayment milestones if you have a loan, whereas business owners with an advance do not have to meet periodic repayment goals.

Shopify Capital does not charge interest rates. Instead, your borrowing fee is calculated using a factor rate.

Here’s how it works: Shopify calculates a fee, based on your borrowing amount, that will determine how much you have to repay. To come up with the repayment, Shopify will multiply the amount you’re borrowing by a factor rate, which will be either 1.1 or 1.13. So, if you are borrowing $10,000, Shopify will collect a total of either $11,000 ($10,000 x 1.1) or $11,300 ($10,000 x 1.13).

Instead of paying a fixed sum each day or month, Shopify collects their cut by deducting a percentage of your revenue each day. Typically this is called a “withholding rate,” but Shopify calls it a “remittance rate.” The remittance rate that Shopify uses as an example is 10%, but your rate might be higher or lower. Because the amount collected fluctuates with your cash flow, you will not have a set repayment date. Instead, Shopify simply keeps collecting their daily cut until they have collected the total repayment amount.

That said, if your particular product is a loan, you will have to repay in 12 months or less. Shopify sets milestones every 60 days to keep you on track. You must repay at least 1/6th of your repayment amount each milestone. For example, if you have a repayment amount of $11,300, you must repay at least $1,884 every 60 days. Business owners who receive a merchant cash advance will not have to meet milestones.

Although cash advances and short-term loan don’t have interest and therefore don’t technically have an annual percentage rate (APR), borrowers may want to calculate a rough APR for comparison. For more information, check out our article on merchant cash advances and APRs.

Application Process

You cannot directly apply for Shopify Capital — the company monitors your account and sends an alert if they think you’re eligible. If you are alerted, you will be able to choose from a few different offers, which will vary by borrowing amount, remittance rate, or other factors.

An alert doesn’t guarantee funding, however. After you choose the offer best suited for your business, Shopify’s underwriters will take a look at your account. When humans get involved, they may find that you are not eligible for the offers presented to you (in which case they will provide alternative offers) or you are not eligible for funding after all. At this stage, you may also have to provide additional information for verification purposes.

If you choose to accept the offer presented to you after underwriting, the money will be sent to your bank account. Shopify states that the time from requesting funds to approval generally takes between two and five business days, and it takes another day to receive the funds in your account. If you switch your payment provider to Shopify Payments at the same time, however, approval might take a little longer.

Sales & Advertising Transparency

Although the wording can be a little confusing and overly technical, Shopify provides a fair amount of information about their Capital product on the website. You should be able to get a basic idea of what to expect before getting too involved in the process.

Customer Service & Technical Support

Customer service is available via phone, email, or live chat. Phone support is available 24/7.

As noted in our general Shopify review, reactions to Shopify’s customer service tend to be diverse. Although many customers are happy with their customer service experience, many other customers have been frustrated with the representatives’ seemingly cookie-cutter approach to solving problems.

You may also be able to find an answer to your problem on Shopify’s Forum or their Knowledge Base. Currently, the Knowledge Base contains very few articles about Capital, but this may change as the product grows.

Negative Reviews & Complaints

Given that Shopify Capital is a new product, customer reviews are minimal. Some people have expressed trepidation. However, reactions from customers who have actually used Shopify Capital are scarce.

Overall, commenters are concerned that Shopify Capital is a non-traditional type of financing and that Shopify doesn’t do enough to make customers understand that concept before borrowing. As stated above, Shopify uses careful “legalese” wording on their website, which can be a little confusing. To ensure you fully understand the cost of the advance, take a look at the factors you should analyze before accepting funds.

It should be noted that Shopify Capital can be a little expensive. If the capital is repaid in about a year, the effective APR can reach into the range of 30%. Merchants will have to calculate their own cost of capital and decide if it’s worth it before accepting an advance.

Positive Reviews & Testimonials

The Shopify Capital launch has been covered by many mainstream news organizations such as Recode, Business Insider, VentureBeat, and PYMNTS.

Otherwise, Shopify has some case studies on their website. As stated above, independent customer reviews are scarce.

Regardless, here is what people like about Shopify Capital:

  • Simple application process
  • Relatively inexpensive financing
  • Online reporting to keep track of progress
  • Repayment fluctuates with cash flow

We’d like to hear from more customers, though. Have you accepted a Shopify Capital offer? What was your experience like? Leave a message in the comments!

Final Verdict

Shopify Capital is certainly worth considering if you are given an offer.

Some people have expressed concerns that Shopify is offering expensive financing. This is certainly a matter for careful consideration; the cost of a merchant cash advance or short-term loan isn’t always easy to understand. However, merchants who do their due diligence before borrowing should have no problem understanding offers and making informed borrowing decisions.

As noted above, merchants (especially creditworthy merchants) may be able to find less expensive financing elsewhere. However, thanks to a simple application process and automatic daily withdrawals that fluctuate with your cash flow, Shopify merchants will have a difficult time finding a more convenient borrowing solution.

Bianca Crouse

Bianca Crouse

Bianca Crouse has been writing about business loans and finance for three years. In addition to Merchant Maverick, she has appeared in Startup Nation and Business.com, among others. She has a BA in English from George Fox University and lives in the Pacific Northwest.
Bianca Crouse
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