14 Sep Financing Options for Your Shopify Store
Starting a business on Shopify or investing in building up your current Shopify store is a move rife with possibilities for the forthcoming year. In Q2 of 2021, Shopify reported a gross merchandise volume (GMV) of $42.2 billion, dominating 2020’s Q2 numbers by 40%. For sellers, the report paints a clear picture: Shopify is increasingly becoming a leading force in the e-commerce ecosystem.
However, for many entrepreneurs, their dreams of Shopify success are likely to be thwarted. 29% of small businesses fail because of one thing: access to capital. Behind lacking market demand, the inability to raise funding is the second most common reason sellers fizzle out of the game.
Thankfully, there are plenty of Shopify funding options on the market. However, choosing the wrong capital solution for your e-commerce business can undermine your growth just as easily as lacking capital entirely.
Shopify Funding Options
The most common type of small business loan is awarded through a brick-and-mortar bank account, which is unfortunately ill-fit for the dynamics of an e-commerce business. Weeding out bank-sourced capital for your Shopify store should be an early step in your decision-making process to avoid excess fees, rigid repayments, high-interest rates, and bare-minimum approval amounts (if you get approved at all).
Opening a new line of credit (while sometimes easiest) is also not the best route to scale up. Having a good credit score will come in handy if you need to apply for more funding down the line, want to explore new business partnerships, or even sell your store, and you don’t want to limit your options too soon to the game.
Three viable alternatives for Shopify sellers to scale are Shopify Capital, venture capital, or growth capital through an independent provider. While venture capital can be more appealing than bank loans and credit accounts for many reasons, the fact that VCs require you to remit a portion of your equity (and creative control) to accept their funding dissuades many entrepreneurs from following through.
Shopify’s proprietary capital solution should seem like the best funding option for your Shopify store, given that it is embedded into the platform and tailored specifically for its sellers, but there’s much to consider about the broader scope of your business before you submit your application.
For one, there’s two very different funding options that fall under the Shopify Capital umbrella: Shopify Capital Loans, and Merchant Cash Advances. Let’s take a look at the details.
The biggest perk of Shopify Capital is since it is embedded into the platform, your approval amount will be based on real-time sales metrics that Shopify can pull from your store’s transaction history. Yet because Shopify Capital does not transcend the platform, this feature is also its biggest downfall.
E-commerce is increasingly a multi-platform game, and for sellers with an omnichannel presence, the exclusivity of Shopify Capital can be a huge con. Not only will your capital be restricted solely to your Shopify store’s growth, but your approval amount will only be reflective of your Shopify store’s portion of your gross revenue.
This is true whether you opt for a Shopify Business Loan or a Merchant Cash Advance, as is the fact that your repayment schedule will be tied to a fixed percentage of your revenue moving forward. Where the two options differ is the length of the repayment schedule and who may be eligible.
SHOPIFY CAPITAL LOANS
Shopify Capital Loans are restricted to sellers based in select U.S. states, and are valid for a 12-month term, divided into six cycles of 60 days during which you’re expected to meet “milestones” (or minimum payback amounts).
If you don’t stay at pace with this schedule, the balance you owe will be automatically deducted from your Shopify account. These terms can be a little scary for first-time borrowers, as the flexibility of the loan only extends so far.
SHOPIFY CAPITAL MERCHANT CASH ADVANCES
On the other hand, Merchant Cash Advances may be extended to sellers in all U.S. states, Canada, and the United Kingdom. There is also no set length of time (nor milestones) that sellers are bound to for repayment. Instead, sellers continue to pay the same fixed percentage of their revenue for as long as it takes to settle their initial advance and lending fee.
While seemingly small, this key detail makes a huge difference. It may also determine to which end of the $200 to $2 million range (applicable for both Shopify Capital options) sellers feel most comfortable committing.
How to Get Shopify Funding
Another drawback to Shopify Capital is the invite-only nature of the program. The criteria for who is eligible are somewhat vague, and the wait-and-see approach to funding leaves many at risk for falling behind (and out of) the market.
The only thing Shopify sellers can be sure of is that their credit score or credit rating will not affect their eligibility. This is unique to Shopify Capital, so if you aren’t confident in your credit history, it might be the best bet for your e-commerce business. Beyond this piece of comfort, sellers can assume that Shopify will be looking at the same things any independent financer would:
- How risky is your business?
- What’s your daily sales volume?
- Are you growing?
- Do you use a reliable payment provider? (Shopify Payments, PayPal, Sezzle, etc.)
Also worth noting: once you receive the notification that you “qualify” for Shopify Capital, there’s still no guarantee you will be approved. Your initial offer is valid for 30 days, but once you go through the application (which takes 2-5 business days), your actual amount may be much less or nil on the other side of their underwriting process.
Which Shopify Funding Option is Right for You?
While the embedded convenience of Shopify Capital might make it appealing for some Shopify sellers (or the lucky few who receive a qualification notice), keep the following in mind before you commit to the first-available funding option:
- If you’re selling on multiple platforms (or plan to expand in the future) Shopify Capital will limit your ability to do so.
- If you DO have a good credit score, you could leverage it for higher approval amounts elsewhere.
- You might be subject to penalties if your growth initiatives don’t go as planned and you can’t keep pace with Shopify Loan milestones.
As an alternative, going with a fintech capital provider such as Yardline offers the following conveniences:
- The Yardline Capital application pulls sales data from all platforms you’re selling through (using a secure API), and your funding is not restricted to any specific channel or use.
- Yardline’s AI-driven underwriting system projects real-time growth predictions to assure the best capital offer for your Shopify (or Amazon, Etsy, eBay, etc.) store.
- Similar to Shopify Capital, repayment is tied to a fixed percentage of your revenue, but there are no milestone penalties and terms are flexible.
- PLUS, accepting Yardline Capital comes with access to our Seller Success Team: a band of e-commerce business experts on-hand to help you reach the growth milestones that YOU envision for your business.
Weighing your options is an important step before committing to any particular capital provider.