Deep Dive Into Shopify Capital: Online Business Owners Guide
Do you know that nearly 30% of small businesses fail due to cash shortages? This is a devastating statistic for company owners who have invested their time and energy into their passion, only to be shattered by the almighty dollar.
Raising money is not simple. However, if you run your online business on Shopify, there is now a simpler method.
Shopify’s capital program, “Shopify Capital,” is meant for qualified clients needing financial assistance to develop their businesses.
However, if you need money from Shopify, you’ll need a long-term plan for spending it so that you may make a profit—and not just drain your profits dry.
What is Shopify Capital?
In April 2016, Shopify launched Shopify Capital, a lending program for Shopify businesses in the United States, Canada, and the United Kingdom.
Shopify offers a unique business loan that connects your company to potential customers.
Rather than paying back monthly installments with an interest rate added on, it finances a portion of your future receipts.
So when you make future sales, some of that money is immediately transferred to the repayment of your Shopify Capital investment.
The amount you receive from the Shopify Capital loan depends on several variables, including your income and credit score.
Depending on your situation, you are starting at $200 to USD 1,000,000.
Shopify Capital committed $115.9 million to merchant cash advances and loans in Q4 2019, a 61% increase over the previous year.
Because of the coronavirus pandemic, some borrowers have received smaller loan amounts.
The amount of available money is frequently increased for repeat borrowers.
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Would you recommend Shopify Capital to me?
When taking a business loan, Shopify Capital makes sense under some conditions, but it won’t work for everyone.
To begin, only eligible merchants can participate in the program, so you won’t be able to apply if you don’t meet Shopify’s standards.
There are 2 rounds of screening.
Shopify will first contact merchants who have been approved to offer discounts, notifying them by email and on the dashboard.
After you’ve completed your application and submitted it for approval, Shopify will do a thorough evaluation before allowing you to create an account and send money.
To be eligible for Shopify Capital, you must fulfill the following 5 conditions:
- You’re using Shopify to sell your products.
- You’re operating in the United States, Canada, or the United Kingdom.
- Have a low-risk profile and decent credit score.
- Shopify Payments or a third-party payment provider are not supported.
- Shopify requires a minimum number of transactions. However, this isn’t specified by the company.
Advantages of Shopify Capital
- It’s straightforward. You won’t have to search for these funds; Shopify will notify you if you meet their minimum standards.
- Repaying your loan couldn’t be easier. You won’t have to worry about missing a payment because Shopify has already established the repayment plan and taken money from your linked accounts.
- Even with bad credit, you may qualify. Shopify is more willing to provide financing to firms plagued by terrible credit than banks are.
Disadvantages of Shopify Capital
- It’s not cheap. Shopify’s repayment plans and interest rates may be more expensive than alternative financing alternatives (especially if your business expands rapidly).
- Repayment is difficult. It’s difficult to comprehend and varies, making it impossible to know precisely how much you’re borrowing compared to how much you’ll owe.
- You’ll miss out on future revenue. While your anticipated sales may appear promising, you must part with some of your earnings until the loan is repaid.
But after taking your business loan from Shopify Capital, the next challenge will be spending your loan wisely.
We made a list of the best 4 ways to leverage your Shopify Capital loan:
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Best 4 Ways to leverage your Shopify Capital Loan
1. Increase your inventory investment
Inventory is an expensive but necessary asset in an eCommerce business.
If you don’t have anything to offer, it isn’t easy to sell anything. However, acquiring inventory comes at a cost.
Financing is essential for startups, especially those that are bootstrapped.
As a result, many online firms must borrow money from outside investors to continue operating and expanding.
2. Enhance your marketing budget
Ecommerce retailers must use advertising to promote their businesses.
It’s a tool that allows you to reach out to consumers in any sector and at all stages of growth.
You may start with only $50 and some Facebook advertising, but if you can enhance your budget without any extra costs, you should do it.
It’s not ideal to start your permanent advertising campaign with Shopify Capital. Still, it may be a useful approach to extend current efforts’ reach while contributing to them.
3. Customizing and labeling your products
Ecommerce retailers must pay close attention to the packing and unpacking process.
This is the most important part. When it comes to packaging, you’re not just trying to protect your product; you’re also attempting to show off its quality and make a first impression on potential customers.
Packaging protects your package from damage during shipping and storage (unless it’s being mailed in an aerosol can or other similar container). It also differentiates your products from those of competitors.
According to a 2016 Research poll, 40% of customers are more likely to return if their order comes in gift-like or premium packaging.
Don’t forget to seal the box with packing materials such as stickers, tissue paper, and return shipping labels.
According to a 2019 Pitney Bowes poll, 72% of customers appreciate getting a return label with their purchase.
High-quality packing and labels are expensive, but this is where Shopify Capital comes in.
4. Launch a new project
What kind of new business are you planning? Your company determines this.
For instance, launching a new microsite, developing and testing a new product, hosting a pop-up shop, or establishing a new warehouse are all examples of creative businesses.
Tracey is a realtor who first studied to be one and then went on to found an eCommerce company.
She recognized a chance to develop a notebook line for her clientele while they looked for houses during her time as a real estate agent.
After accumulating sufficient stock and demand, she wanted to move into the physical retail space.
Shopify Capital helped Tracey find the right balance between working and spending money.
They financed most of her startup expenses, allowing for a seamless move from the Internet to in-store sales.
Certain loans demand immediate repayment, but Shopify Capital allows you to repay your debt gradually with interest, giving you more freedom in money management.
You can use Shopify Capital to invest in your online business by purchasing a line of credit from it.
The intention is to utilize the money from Shopify Capital to generate returns in business development and growth.