BUSINESS

Shopify Capital for Merchants: Cash Advance vs Shopify Loans

Shopify is a unique commerce platform that offers a large set of tools and resources to help merchants from around the world bring their businesses online and operate them smoothly. Shopify tools and resources are sufficient to run an e-commerce site hassle-free. Apart from small and medium-sized businesses, now larger brands are also flocking to the platform due to its unique features and higher success rate.

Shopify offers several features that drive higher user engagement and retention rates. Apart from these technological and other features that support business operations, Shopify also supports its merchants financially. While the financial support program offered by Shopify is not so expansive or covers only a small group of qualifying businesses in a few geographical regions, the program is still considered superior to other funding options in various regards. The two main funding options that Shopify currently offers include merchant cash advance and loans. 

People may mistake the two to be the same but the truth is they differ. Apart from eligibility criteria, the payment terms for the two also differ. Another important thing about these funding options is that if you are eligible for any of them, Shopify will send you an invitation. Every merchant cannot apply for them. Shopify considers several factors to find out eligible merchants who receive a notification in their admin panel. However, the invitation does not always guarantee that the merchant will receive the funding. Shopify evaluates the business and its risk profile before offering the funding finally.

Shopify Capital Merchant Cash Advance:

A merchant cash advance is an advance sum that a merchant receives from Shopify in exchange for selling a fixed amount from his future sales revenue to Shopify Capital. The amount of future sales revenue that a merchant sells to Shopify Capital is called total to remit. Shopify sends the sum borrowed directly to the merchant’s business bank account. The sum that the merchant needs to pay back to Shopify Capital on a daily basis is a fixed percentage of his daily sales revenues. It happens until the merchant has paid back the total to remit.

Let’s take an example. 

Shopify purchases $10,500 of a merchant’s future sales revenue. It pays the merchant an advance sum of $9,500 at a remittance rate of 10%. The $9,500 advance will go to the merchant’s business bank account. Shopify will receive 10% of the merchant’s daily sales revenue in return till the merchant has paid the complete remittance. There is no fixed deadline on merchant cash advance. It means the term can extend indefinitely. If the merchant has paid 25% of the total to remit back to Shopify Capital, he has the option for paying back the remaining sum in a single lump sum amount.

How much the merchant has to pay back daily depends on his daily revenues since the remittance sum is a percentage of his daily sales. The daily remittance sum is debited automatically from the merchant’s business account. The funding amount lies in the $200 to $1,000,000 USD or $200 to $500,000 CAD. Apart from the US and Canada, merchant cash advances are also available in the United Kingdom, where shopify offers funding amounts between £250 to £375,000 GBP. 

How much total the merchant will pay back (total to remit) and the remittance rate depends on the merchant’s risk profile.  However, if you have received an invitation from Shopify capital, it does not mean, Shopify will necessarily approve the cash advance. Shopify generally replies within 2-5 business days if a request for funding has been approved. 

How does a merchant request a cash advance?

Any eligible merchant will receive a notification from Shopify. There is no application process for getting selected but you can only apply if you have received a notification. The merchant must go to settings in his admin panel and from there select Capital. The funding offers can be viewed from there. Eligible merchants receive varying funding options of different amounts with different total to remit and remittance rates. 

For example, a merchant may receive three offers of $5000, $6,000, and $7,500. The total to remit will be $5,650, $6,700, and $8,250 respectively. The remittance rates can be 10%, 9%, and 8% respectively for the three options.

Shopify Admin => Settings => Capital => View Funding Offers => Request => Review and accept terms.

When the merchant has reached the Capital page, he can view the various funding offers there. He can compare the terms of these funding options and then select the one he finds suitable. Having found the best funding options, he can click on the request button under that option, and then all he needs to do is to review and accept terms.

In the terms of each funding option, Shopify includes the following information – Amount received, total to remit, and the remittance rate. Shopify capital starts debiting the daily remittance starting two days after the merchant has received the merchant cash advance in his account.

(The eligibility criteria in the UK includes being located in the UK, having a low risk profile and processing a certain amount of daily sales, selling in GBP and using Shopify payments.) 

Shopify Capital loan:

Shopify capital loan is similar in some regards to the Shopify Capital cash Advance. There is a fixed borrowing cost. The amount owed back to Shopify includes the sum loaned and the fixed borrowing costs. Shopify deposits the loan amount in the merchant’s business bank account. The term is of 12 months and Shopify capital receives a fixed percentage of the merchant’s daily sales till the total sum word has been paid. One main difference between Shopify merchant cash advance and Shopify loans is that while Shopify merchant cash advance does not have a fixed term, loans have a term of 12 months. 

Shopify divides the term into six repayment cycles of 60 days each, also called milestones. Each milestone is associated with a minimum payback amount which must be met by the end of the milestone or Shopify will deduct the difference from the merchant’s account. For example, if the minimum payback amount associated with one milestone for a merchant is $650 and he pays only $500, then at the end of the milestone, Shopify will deduct the remaining $150 from the merchant’s account. The loan amounts Shopify offers lie in the $200 and $1,000,000 range. The borrowing cost and the repayment rate depend on the risk profile of the merchant. The borrowing cost is not the same for each offer but varies on an offer to offer basis. 

Shopify Capital loan facility is available only in the following US states:

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

In the rest of the US states, Canada and the UK, the company offers merchant cash advances.