Shopify Capital: Business Loan vs Cash Advance

Working capital is a perennial challenge in the ecommerce space. That’s why solutions like Shopify Capital have been launched to help ecommerce businesses get easier access to capital. 

Access to capital is a challenge for ecommerce businesses as conventional forms of funding are mostly unavailable to the ecommerce industry. Banks and credit card companies don’t fully understand the ecommerce space. Also, their lending options typically include high costs for online sellers. Often, this is due to the perceived risk. Banks also generally ask for company founders to act as guarantors, putting their personal finances at risk.

The reason that ecommerce businesses need capital is simple: long sale payment terms from online marketplaces, combined with the need to put a lot of capital in inventory. This combination of cash tied in up stock and waiting to get paid for existing sales is a massive challenge for growing ecommerce companies. How can you invest in your future when you are struggling with cash flow? 

To help, Shopify and others like Yardline have offered sellers access to cash advances, to help fund and progress the business when cash flow is tight. Cash advances are a valuable way to grow your business and invest today, while you wait for your sales revenue to arrive. However, not all capital advances are the same. Some, like Shopify, are designed for short-term cash flow, to bridge the gap between payments and expenses. Others, like Yardline, are built to help ecommerce businesses get capital to invest in their future. 

Cash advances, like those offered by Shopify Capital, assess your sales data and advance your money based on your future sales forecast. Funds are paid back to them once those sales become real, along with a percentage of fixed interest. Funding from cash advances like Shopify Capital can be used to purchase additional inventory, restock, or fund marketing campaigns to expand your customer base. 

However, not all capital advances are created equally. Shopify Capital might not be the right option for your business in the long term. In this blog, we will look at varied ecommerce funding options so that you can decide what’s best for your business.

Business Loans to Support Sellers

Business loans and credit cards are the most recognizable ways that sellers can get additional funding for their business. Typically, when we think of borrowing, we think of bank loans. 

However, these forms of funding are often unattainable for online sellers due to long ecommerce platform payout periods, and the perceived unpredictability of the space. Lenders have to be confident that repayments can be made, no matter what. 

Unfortunately, most loan applications simply aren’t built with ecommerce in mind. Banks may even see healthy ecommerce businesses as a risk, due to the nature of their capital. More often, it is tied up in inventory, and finances can be tight when sales revenue is delayed. 

Bear in mind that bank loans are not the only form of business loan available. Online lenders are often more amenable, as they understand more innovative industries, like ecommerce. However, their interest rates are typically much higher, as they lack the stability of the banking sector. 

Either way, these conventional funding streams require a good credit history. Often, both the business and the business owner need to prove good finance management. Even with the best credit history, the founder might need to risk their assets and their personal finances to secure the funding. 

This is even more likely when financing an online business, due to the perceived risk involved for the financier. Therefore, there are real challenges to finding finance through more conventional means. Even if you manage to secure a loan, interest rates and levels of personal risk are high.

Cash Advances to Support Sellers

Due to the challenges with traditional lending, online sellers are being encouraged to turn away from these financing methods. Therefore, cash advances are becoming more and more popular.

Cash advances are calculated based on sales data and projected sales forecasts. Therefore, ecommerce business owners should never bite off more than they can chew. 

Terms vary depending on the financier. Some platforms do not have a fixed deadline, and some are open to repayment terms and conditions. 

Shopify Capital is one example of an online platform that offers cash advances directly to ecommerce businesses. 

However, Shopify Capital isn’t for all ecommerce companies. The platform is limited to Shopify stores only. There are also funding limits, combined with restrictions on spending.

Also, Shopify Capital requires a personal guarantee. Personal assets must be secured against the finance. Ultimately, this puts your personal possessions at risk if repayment terms are not met. This might include your house, car, and other personal items of value.

With Shopify Capital, daily debits are made from your sales revenue. This is part of the lenders’ terms and conditions. Debits are taken as a percentage of your sales until the total amount is returned. However, this figure must total one-sixth of the borrowed amount every 60 days, regardless of your sales revenue.

The defining factor that sets ecommerce sellers apart from brick-and-mortar retail is their ability to be flexible, and limiting yourself to a singular online platform’s cash advance terms might mean that Shopify Capital is not right for you. However, the simplified concept of a capital advance might resonate.

Other Cash Advances Don’t Require a Personal Guarantee

Ultimately, the right lender depends on the needs of your business. While Shopify Capital or traditional lenders could provide you with adequate funding, many online sellers want more from their cash advances. The ecommerce space is ever-evolving and flexible. Funding options should be, too.

At Yardline, we offer cash advances with flexibility, for the ecommerce space. We have no spending restrictions, so you can scale your business however suits you. Whether you sell on Amazon, own a Shopify store, or operate on any other platform – our cash advances help you to continue your growth. 

Use our capital advance to purchase additional inventory, invest in effective marketing campaigns, make logistical changes, and more. We offer from $5K up to $20M for you to invest in your business, and your application could be approved in as fast as 24 hours.

Yardline also works with you to get the most out of your advance. Our Seller Success Team will help you benchmark your business against others in your market by using our own proprietary Business Assessment (also known as the Y50BA™). We can advise you on which tactics are best to grow your business and reach new heights.