Shopify Capital: How to Get a Loan to Fund Your Shopify Store Growth

May 24, 2022
by
Rachel Go

Shopify Capital: How to Get a Loan to Fund Your Shopify Store Growth

May 24, 2022
by
Rachel Go
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More than one million ecommerce businesses in 175 countries use Shopify to reach hundreds of millions of customers.

In mid-2016, Shopify introduced Shopify Capital, a small business financing program where qualified recipients can receive up to $1 million in funding for their ecommerce stores. 

With an injection of extra capital, new stores can gain a head start, growing stores can scale faster, and even established merchants can qualify for the funding to set themselves apart from competitors.

In this article, we’ll go over:

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What is Shopify Capital?

shopify capital homepage small business funding
Image: Shopify

Shopify Capital is a financing program created to give qualified sellers fast access to business loans and merchant cash advances

It’s offered on an invitation-only basis—if eligible, interested participants can apply after getting their invite.

The Shopify Capital program showcases three financing use cases:

  • Capital Payroll Funding provides you with financing for hiring and investing in your people.
  • Capital Inventory Funding helps you purchase the necessary inventory for your store, whether that’s replenishing your existing SKUs or adding new ones.
  • Capital Marketing Funding gives your marketing budget extra juice so you can conduct initiatives to grow brand awareness and drive traffic to your store.

This type of funding brings several benefits compared to the alternatives

  • Receive the funding quickly (requests are approved within days)
  • No lengthy application process
  • Flexible payment terms
  • Conveniently repayments as a percentage of your store’s sales

Shopify Capital is a superb option if you need additional small business funding to scale your operations.

shopify capital pros and cons

Shopify Capital pros

  • Easy pre-qualification and application process: Compared to traditional financial institutions with lengthy application processes, Shopify Capital has minimal paperwork and no personal credit checks.
  • Fast access to the right amount of funding: Shopify Capital offers a wide range of funding amounts so you can borrow what your business needs. You can also receive your funding within days of accepting an offer.
  • Flexible and easy-to-monitor repayments: You repay your received funding as a percentage of your sales, which means your payments flex to fit your business and its performance. You can conveniently monitor your repayment progress in your Shopify admin dashboard.
  • Reasonable costs: Shopify Capital is reasonable when it comes to your repayment amounts. It also does not charge interest rates, making it less of a financial burden than other short-term loans and cash advances.

Shopify Capital cons

  • Exclusive to Shopify account holders: Only those with a Shopify account can apply for a loan or cash advance through Shopify Capital, which can be a problem for businesses on other platforms.
  • Frequent repayments: Your repayments are debited daily from your Shopify sales revenue, which means your daily profits take a hit. Despite your sales looking good, you’ll see fewer gains until your loan is paid back.
  • Invite-only: The program is invite-only, with Shopify letting merchants know when they can apply. This exclusivity can be frustrating since it’s unclear why some merchants fail to make the cut.
  • Vague eligibility criteria: With few specified requirements, businesses don’t know whether or not they’re eligible for Shopify Capital funding. We only know that Shopify takes your sales figures and risk profile into account.

How to use business funding to scale your store

shopify capital grow your store

The three use cases of financing Shopify Capital offers hints at where you might implement additional funding for your business.

However, there are other ways you can leverage more capital to elevate your brand and operations.

1. Grow your acquisition team

With proper funding, you can build your ideal team by bringing in new people or expanding existing roles. 

You can also hire expert contractors or freelancers if you’re working on specific projects for your business.

For example, a team of freelance marketers or an in-house growth team can improve customer acquisition, retention, and revenue by optimizing your products and exploring different channels.

2. Upgrade your brand identity

Additional funding can also refine and polish your brand

For example, you can hire designers to make your branding more recognizable across multiple platforms like LinkedIn, Twitter, and your own website.

You can produce more brand assets, ensure all your creatives are instantly recognizable and align with your brand, and update your website’s UX design to deliver a better customer experience.

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3. Leverage paid ads

Advertising is critical in ecommerce, but it can be expensive. 

Access to financial resources opens up new opportunities to conduct campaigns and promote your brand to the right people.

Costs per click (CPC) have been rising, and competition is fierce. 

Lacking an adequate ad budget can result in wasted efforts if your ads miss the mark or you advertise in the wrong places.

With enough funding, you can hone your ad strategy. For example:

  • Put more budget into highly competitive key terms, with a separate budget for brand defense terms.
  • Invest in new creative, then conduct A/B testing to see which kinds of ads perform the best.
  • Explore other advertising channels for your campaigns, such as social media and search ads.

4. Purchase extra inventory

Stocking products is a key contributor to business growth

Sometimes merchant sales are limited to how much inventory they can afford at one time. Think about products that sell out due to popular demand and then have a waiting list because brands couldn’t afford to order enough.

Other brands might have a longer gap between sales and payment. 

For example, if you offer custom-made jewelry and don’t charge the full amount upfront, you may need more funding to stay in stock while creating and delivering your current orders.

With Shopify Capital, you can purchase the right amount of stock regularly to streamline inventory management and fuel your growth.

It allows you to:

  • Purchase items in bulk or prepare for seasonal sales like BFCM or the holidays.
  • Add extra padding to circumvent any unforeseen or upcoming supply chain issues.
  • Avoid going out of stock and losing customers (and orders), even if you’re running low on capital.

5. Add website functionality

Expanding your store’s functionality can improve the overall buying experience for your customers, which increases sales and your average order value (AOV).

With your Shopify funding, you can:

  • Use paid tools to optimize your website, making it faster, more responsive, and more functional
  • Update your brand graphics, so they’re more iconic and easier to navigate
  • Introduce cross-selling and upselling opportunities with additional apps

6. Expand your catalog

Having sufficient capital allows you to conduct research and development, which can reveal new products, SKUs, and services to add.

These additions bring significant benefits:

  • A broader selection that meets more needs keeps your customers interested, especially with a constantly evolving market.
  • A more diverse portfolio lessens your risk. When some of your products are out of season, you’ll have others to offset that sudden drop in demand.

7. Outsource fulfillment

Once you expand your catalog and start to grow, you may need to outsource fulfillment (after all, merchants don’t get into ecommerce to become warehouse managers).

With your Shopify Capital funding, you can easily get your products into fulfillment centers to satisfy your customers’ demands.

Shopify’s powerful apps also let you:

  • Automate and streamline your inventory management
  • Offer international shipping and fast shipping nationwide
  • Provide customers a seamless post-purchase experience
  • Build resilience to guarantee deliveries no matter what the supply chain looks like

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Shopify Capital loan eligibility

Shopify Capital is an invite-only program

Shopify will notify you if you’re eligible to apply for Shopify Capital funding through email and a message on your admin’s homepage. This message invites you to view your available funding options.

shopify capital eligibility page loan offers

Tip: Even if you haven’t been approved, you could be in the future. Shopify continuously assesses stores and makes new loan offers. 

As of this writing, only Shopify stores based in the following US states can qualify for a Shopify Capital loan:

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

Shopify has specific criteria to decide which stores they’ll offer loans to.

While the exact details of the company’s eligibility requirements are not publicly available, your sales figures and risk profile (as determined by Shopify Capital’s underwriters) are taken into account. 

You’ll also need to have either Shopify Payments, or a third-party payment provider enabled on your store to qualify for a Shopify Capital loan.

Here’s a quick overview of what you’ll need to qualify:

  • You must have a Shopify seller’s account and a business bank account.
  • Funding through Shopify Capital loans is only available to stores located in the US.
  • Shopify Capital merchant cash advances are available to stores in the US, Canada, and the UK.
  • Your business must be assessed as low risk. 
  • You should have Shopify Payments enabled or use a compatible third-party payment provider in your store.
  • Your Shopify business must regularly have a certain level of sales.

Shopify doesn’t define what they consider a “low-risk” business, but your industry and sales history likely influence that determination. 

They also fail to disclose the volume of sales your business must process to qualify but clarify that they frequently track seller accounts.

Based on the above information, having a Shopify store that shows a consistent growth in sales makes you more likely to qualify for funding while experiencing seasonal spikes in sales doesn’t. 

However, being ineligible now doesn’t preclude you from qualifying in the future.

How to apply for a Shopify Capital loan

If you receive an eligibility notification and invite from Shopify, you can easily view the available funding options and request your loan by following these steps:

1. From your Shopify dashboard, go to Settings > Capital.

2. Click View funding offers.

3. Shopify will present you with three funding options. Compare their terms* and click Request beneath the one you want.

4. In the Review loan terms and submit your application dialogue, click Merchant Loan Agreement to open it in another browser tab.

5. Review the terms of the Merchant Loan Agreement, then go back to the Review loan terms and submit your application dialogue.

6. After that, click Submit application and you’re good to go.

*The terms of each funding option will include the following:

  • The amount received
  • The total owed
  • The daily repayment rate that will be deducted from your daily sales

Once you submit your application, Shopify will review it. 

You’ll typically receive a response within one to three business days. Your loan will be delivered to your business bank account if your application is approved.

After receiving it, Shopify Capital will begin debiting the daily repayment from your account within two business days.

Here are some other details you should know:

  • If asked, you’ll need to verify your identity and business details for Shopify Capital.
  • You may have to re-verify your details if you've previously received funding. 
  • Your application’s approval may take more than five business days if you switch your payment provider to Shopify Payments when you request funding.

Shopify Capital repayment terms

Your repayments will be a percentage of your daily sales until the end of a 12-month period. 

Shopify divides this term into six 60-day milestones. You’re expected to meet a minimum payback amount at the end of each milestone. 

If you fail to pay the margin, it’ll be deducted from your account.

The borrowing fee is variable, and Shopify doesn’t disclose how they calculate it. Based on anecdotal evidence, we can see that it’s typically around 10% of the total fee of the full loan amount.

Let’s say they gave you $2,000 with a borrowing fee of $200 (which is 10% of your total loan amount), and a repayment rate of 10%. Every day, 10% of your sales will go toward repaying this loan until you clear the total amount of $2,200 at the end of the 12-month term.

You’ll also be expected to repay at least $333.32 (one-sixth of the total owed) at the end of each milestone.

For instance, if you only repaid $150 at the end of the first milestone, the remaining $183.32 will be subtracted from your account.

How to repay your Shopify Capital loan

You can either repay any amount over $20 or the total remaining balance in one lump sum. 

It will then be debited from the same business bank account associated with your Shopify account. Simply follow these steps:

1. Go to Settings > Capital from your Shopify admin.

2. Click Make a payment.

3. Choose the amount you want to pay:

  • To pay your desired amount manually, enter it in the Custom amount field.
  • If you're going to repay the loan in full, click Full remaining balance.

4. After that, click Next step to review the amount to be repaid.

5. Lastly, click Make a payment.

Once your repayment is complete, you’ll receive a confirmation from Shopify.

Shopify Capital merchant cash advance

shopify capital merchant cash advance

Shopify offers another type of financing called a merchant cash advance

This business cash advance is a lump sum of money you can receive for a fixed borrowing cost. 

This fee is situational, and Shopify doesn’t disclose exact percentages. Its rate and total remittance depend on your risk profile.

The merchant cash advance shares similarities with a Shopify Capital loan:

  • You can complete the application process through your Shopify admin’s Capital page. 
  • Your merchant cash advance is deposited straight into your business bank account.
  • You also pay Shopify Capital a percentage of your daily sales until the total amount is repaid.

However, there are no payment milestones nor a fixed term, making it more flexible than a Shopify Capital loan. 

Shopify will keep deducting your repayments until the whole advance and fee are fully repaid.

How a merchant cash advance works

Let’s say Shopify offers you a $2,000 merchant cash advance with a borrowing fee of $200 and a repayment rate of 10%. 

This means 10% of your daily Shopify sales will go toward repaying your merchant cash advance until you’ve cleared your total owed amount of $2,200.

Nothing will be deducted from your bank account on days when you don’t make a sale. 

This makes it more flexible and safer for your business—as long as you earn sales revenue, you can repay your loan.

How to apply for a merchant cash advance

If you received an eligibility message, applying for a merchant cash advance is similar to that of a Shopify Capital loan:

1. Go to Settings > Capital from your Shopify admin page.

2. Click View funding offers.

3. Compare the terms* of the available funding options, then click Request beneath the one you want.

4. Review the Terms and conditions section in the Review and accept terms dialogue, then click Shopify Capital Agreement to open it in another browser tab.

5. Review the Shopify Capital Agreement and the Pre-authorized debit agreement.

6. After that, go back to the Review and accept terms dialogue and click Accept terms.

*The terms of each funding option will include the following:

  • The amount received
  • The total to remit
  • The remittance rate

Shopify Capital will review your request and send you a response within two to five business days. Your merchant cash advance will be deposited into your business bank account if approved.

Then, Shopify Capital will start to debit your daily payments two days after you receive your merchant cash advance.

Here’s what else you should be aware of:

  • If you want to change your bank account for Shopify Payments and your remittances, you’ll have to contact support and complete a new pre-authorized debit agreement.
  • Your approval may take more than five business days if you switch your payment provider to Shopify Payments when you request funding.

How to repay your merchant cash advance

You can pay your remaining balance in a single lump sum once you’ve remitted at least 25% of your total. 

It’s debited from the same business bank account that’s connected to your Shopify account. The process is as follows:

  • Go to Settings > Capital from your Shopify admin.
  • Click Remit balance.
  • Review the balance to be remitted, then check the authorization box and click Remit balance.

Processing your lump-sum remittance could take up to three business days, and all regular remittances are paused during this period. Once complete, you’ll receive a confirmation email.

Shopify Capital FAQs

Below, we’ll answer some frequently asked questions about Shopify Capital.

Can you negotiate Shopify Capital loan amounts?

No, you can’t negotiate your pre-qualified Shopify loan amounts.

However, once you’re approved, Shopify will provide three different pre-approved loan amounts. You may choose between these amounts to get the best loan suited to your needs.

How much is a Shopify Capital loan?

You can expect your Shopify Capital funding to total anywhere between $200 and $1 million

This is in exchange for a set amount of your future sales revenue, which serves as repayment. You’ll also have to repay the advance, plus a borrowing fee.

Many businesses are taking advantage of this funding avenue: According to Shopify's financial results for the first quarter of 2022, merchants in the US, Canada, and the UK have received $346.7 million in merchant cash advances and loans from Shopify Capital.

Does Shopify Capital affect credit scores?

Based on the limited information available, Shopify Capital does not affect your credit score

However, we can’t guarantee this with 100% certainty. It’s best to get in touch with Shopify to clarify the details during your application.

Is Shopify Capital available internationally?

Shopify Capital loans are only available to merchants in the US and Canada. However, Shopify offers Merchant Cash Advances to stores in the UK, as well.

Alternative options to raise Shopify capital

If you’re hesitant about trying Shopify Capital or don’t want to wait to become eligible, here are some alternatives. 

These are excellent choices for getting that much-needed funding when you’re unable to apply for a Shopify loan.

Payability

payability funding shopify capital alternative
Image: Payability

Payability offers Shopify seller funding options where amounts range from $10,000 to $250,000. It has an easy application process and doesn’t require credit checks or bank documents.

You can also connect your marketplaces, then the company evaluates your business based on your sales history and account health.

Clearco

clearco funding shopify capital alternative
Image: Clearco

Clearco gives you easy access to marketing and inventory capital funding options. 

You simply connect your stores and ad accounts, then the company measures key growth metrics like monthly revenue and ad performance.

You’ll receive three funding offers ranging from $10,000 to $20 million in 48 hours or less

You only have to pay when you earn revenue, and you choose the percentage of your daily sales that serves as repayment. 

SellersFunding

sellersfunding shopify capital alternative
Image: SellersFunding

SellersFunding provides readily available Working Capital

You can receive credit limits of up to $5 million, terms of up to 12 months, and your application can be approved in as little as 48 hours. It also has no impact on your credit score.

Create your account, connect your marketplace/s, review and select from the available proposals, and have your funds deposited into your preferred account.

Use Shopify Capital to fuel your growth

Shopify Capital can be a fantastic solution for financing your business’s needs, whatever its size. 

A Shopify loan is easily accessible (to qualifying merchants), flexible, and can provide you with adequate funding for marketing, inventory, or acquiring the right people to help your store grow. 

If you’re one of the lucky small business owners who receive that coveted “You’re Eligible” notification, take advantage of the opportunity to grow. 

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Rachel Go

Rachel is a remote marketing manager with a background in building scalable content engines. She creates content that wins customers for B2B eCommerce companies like MyFBAPrep, Flxpoint, Shogun, and more. In the past, she has scaled organic acquisition efforts for companies like Deliverr, Skubana, and Pipe17.