Shopify Capital vs. alternatives: Find the best fit for your business

Is Shopify Capital the right funding option for your business? 

Securing funding is a critical – but often frustrating – part of growing a business. You need financial resources, and you need them as soon as possible. Shopify Capital knows this, which is why they’re the quick and convenient option, luring business owners with the siren call of instant funds on the Shopify platform.

Before you sign on the dotted line, though, let’s examine it closely. The tech giant is not where it is today by accident. Shopify reported a whopping 7.1 billion dollars in revenue in 2023 alone and they own a sizable slice of the eCommerce market platforms – 10% of worldwide market share, according to Statista. 

Naturally, Shopify’s financial products will be eye-catching. But this isn’t about jumping on their bandwagon. This is about making thoughtful choices that benefit your business. 

We’re going to lay out Shopify Capital, and detail what goes on behind the scenes, the benefits as well as the disadvantages. We’ll also take a look at some Shopify Capital alternative funding options – because, as a business owner, the game is knowledge, and the right financial support is the ace to help you go all-in.

What is Shopify Capital?

Shopify Capital is a financing program available exclusively to merchants selling on the Shopify platform. If you’re a Shopify seller in need of immediate and accessible capital to grow your company, the platform offers small-business loans and merchant cash advances.

Instead of going through the time-consuming process of applying for a traditional bank loan, Shopify Capital provides funding options that you can use for a variety of business purposes, such as purchasing inventory or investing in marketing campaigns.

How does Shopify Capital work?

Shopify Capital offers two main ways for eligible merchants to access funding: merchant cash advances and loans. The type of financing you qualify for relies on several factors, including your business location and financial history.

1. Shopify Capital merchant cash advances 

With merchant cash advances (MCA), Shopify Capital provides you with a lump sum of cash upfront. In exchange, you agree to repay the advance, plus a predetermined fee, through a percentage of your daily sales.

This means your repayment amount fluctuates based on your sales performance – you'll pay back more when business is booming and less if sales slow down.

2. Shopify Capital business loans

Shopify Capital also offers business loans with fixed terms and interest rates. You'll receive a set amount of capital and repay it through regular installments, typically on a daily or weekly basis, over a predetermined period. Unlike an MCA, your loan repayments remain fixed regardless of your sales volume.

Who should consider Shopify Capital?

While Shopify Capital has become an increasingly popular funding option for eCommerce, it isn't the right fit for every business. Let's explore whether it aligns with your unique needs:

• You're deeply embedded in the Shopify ecosystem: This one's a no-brainer. Shopify Capital is built for businesses operating on the Shopify platform
• You require capital with urgency: The platform is known for its quick application reviews and funding dispersal, often within days. But if you have time to shop around, other options might offer lower costs
• Traditional lending avenues have proven challenging: It doesn't use personal credit scores or require collateral, making it ideal for newer businesses or those who've had trouble with traditional lenders

Shopify Capital eligibility

Shopify Capital is not open to everyone. The platform employs a selective process to determine which merchants qualify for their financing programs. 

So, how does Shopify Capital work? The criteria include:

• Location: Currently, Shopify Capital is only available to businesses operating in the United States, Canada, the United Kingdom, and Australia
• Data-driven assessment: Shopify uses an advanced, automated underwriting model powered by machine learning to assess eligibility
• Established Shopify merchant: You must have been selling on their platform for a minimum of 90 days
• Compliance with Shopify policies: You must be in good standing with Shopify, adhering to their Acceptable Use Policy and Terms of Service
• Invitation-only access: If your business meets the eligibility criteria, they’ll send you an email invitation. A notification will appear in your Shopify admin dashboard, directing you to view your available offers

Benefits of Shopify Capital

Let's explore what makes Shopify Capital stand out:

1. Seamless integration with the Shopify ecosystem

Juggling multiple platforms and dashboards can be a nightmare for busy entrepreneurs, but Shopify Capital offers exceptional convenience and integration. The entire funding process, from application to repayment, blends effortlessly into their platform. 

This advantage frees you from the need to navigate external websites, submit redundant documentation, or manage separate accounts, streamlining financial operations and providing a centralized hub for all things Shopify.

2. Data-Driven underwriting

Shopify Capital stands out from traditional lenders by leveraging the power of data in its underwriting process. Instead of relying only on personal credit scores or collateral requirements, it analyzes real-time business performance data from a merchant's store.

With a data-driven approach, Shopify assesses creditworthiness and risk tolerance based on sales history, customer engagement metrics, and other key factors, potentially opening up funding opportunities for businesses that might face barriers with traditional lenders.

3. Fast funding (for invited businesses)

If you're fortunate enough to receive an invitation, you'll appreciate their quick funding process. The platform verifies businesses and has access to your Shopify data, so invited merchants can often receive financing within days of completing their application.

Downsides of Shopify Capital

While Shopify Capital has its allure, it's essential to approach this funding option with a clear understanding of its limitations. Consider these potential drawbacks:

1. Limited transparency

Some merchants may find the lack of transparency surrounding their lending practices a significant drawback. Don't expect to find readily available information on interest rates, term lengths, or the specific factors influencing their lending decisions. 

For example, the amount advanced and the remittance rate under MCA financing depends on your risk profile.

2. Invitation-only access

You can't choose Shopify Capital, it chooses you. It's worth emphasizing that the platform operates on an invitation-only basis. Businesses can’t apply for funding, even if they believe they meet the eligibility criteria. 

Shopify determines which merchants receive invitations based on their internal algorithms and risk assessments. This lack of control can be discouraging for businesses eager to explore their funding options and may lead to missed opportunities if they don’t proactively seek out alternative lending options.

If you'd rather not wait for an invitation to fund your business, consider Stenn's eCommerce financing.

Shopify Capital alternatives

Before you accept an invitation or even pin your hopes on receiving one, take a moment to consider the diverse world of financing options available to eCommerce businesses.

Understanding the differences between each option – and how they compare to Shopify Capital – can equip you to make strategic decisions that support your growth goals and financial situation.

1. Invoice financing

Invoice financing allows businesses to access funds tied up in unpaid invoices. Rather than waiting for customers to pay, you receive an upfront advance from a financing company, bridging the cashflow gap.

For example, imagine that you've shipped a large order to a customer, and you're awaiting payment according to the agreed-upon terms (say, 30 days). But you have bills to pay now – suppliers, staff, marketing – and waiting for that invoice to clear could put a strain on your resources. That's where invoice financing comes in.

How it works

1. Invoice the buyer: After fulfilling an order, you invoice the buyer for products or services with the payment terms
2. Partner with a financing provider: You approach an invoice financing company and present them with the invoice. They verify its legitimacy and assess the creditworthiness of your customer
3. Receive an upfront advance: If everything checks out, the financing company advances you a significant portion of the invoice value (typically 80-90%), giving you immediate access to funds
4. Get the remaining balance after customer payment: Your customer pays the invoice to the financing company according to the original terms. Once the payment clears, the financing company releases the remaining balance to you, minus their fees

One limitation of invoice financing is its focus on companies operating within a business-to-business (B2B) model. Those selling to consumers (B2C) might not qualify for this type of financing.

Invoice financing vs. Shopify Capital

2. Revenue-based financing

For eCommerce businesses on a strong growth trajectory, revenue-based financing (RBF) offers a flexible and non-dilutive funding alternative to traditional loans or equity financing. Instead of fixed monthly payments, RBF providers receive a percentage of your future revenue until the agreed-upon amount is repaid.How it works

1. Secure funding: You partner with an RBF provider and agree on a funding amount and a percentage of your revenue that will be allocated to repayments
2. Receive capital: You receive the agreed-upon financial resources, providing an infusion of capital to invest in inventory, marketing, or other growth initiatives
3. Repay according to revenue: You make repayments to the RBF provider as a percentage of your monthly or quarterly revenue

Revenue-based financing vs. Shopify Capital

3. Asset-based lending

For eCommerce businesses with significant inventory value, asset-based lending can be a viable way to secure funding. This type of financing uses your existing assets – in this case, your stock – as collateral to secure a loan. Companies can unlock working capital that would otherwise be unavailable.How it works

1. Asset valuation: The lender assesses the value of your inventory, considering factors like the type of goods, their marketability, and their current market value
2. Loan-to-value ratio: Based on the valuation, the lender determines a loan-to-value (LTV) ratio. This ratio represents the percentage of your inventory's value that they’re willing to lend
3. Funding and repayment: You receive the loan amount, and repayments are made on a predetermined schedule, often with interest
4. Collateral control: The lender may require you to maintain a certain level of inventory value throughout the loan term. If you default on the loan, the lender has the right to seize and sell the collateral (your inventory) to recoup their losses

Asset-based lending vs. Shopify Capital

4. Crowdfunding

For startups and growing businesses, particularly those with a unique product, service, or mission, crowdfunding offers a way to raise capital by engaging a large number of individuals – the "crowd" – through online platforms. It’s an accessible funding option for small businesses.How it works

1. Choose a platform and format: Numerous crowdfunding platforms cater to different industries and funding models. Common formats include:some text
   1. Peer-to-peer lending: Individuals lend money to businesses with the expectation of repayment with interest
   2. Equity crowdfunding: Investors contribute funds in exchange for equity ownership in the company
   3. Rewards-based crowdfunding: Backers contribute to the project or venture with the understanding that they’ll receive non-financial rewards, such as early access to products, exclusive merchandise, or special experiences
2. Craft a compelling campaign: A successful crowdfunding campaign depends on a well-defined project, a clear goal, and a persuasive pitch that resonates with potential backers
3. Engage the audience: Crowdfunding isn’t passive. Businesses must captivate potential backers, answer their questions, address their concerns, and build excitement around the project
4. Funding and fees: If the campaign reaches or exceeds its goal, the company will receive the money, minus any platform fees. Some platforms operate on an "all-or-nothing" model, so the company only receives the funds if it hits your target

Crowdfunding vs. Shopify Capital

5. Business line of credit

With a business line of credit, you have a pre-set pool of funds available to draw from whenever your eCommerce needs it. Rather than receiving a fixed loan amount all at once, you can tap into this credit line for smaller expenses, unexpected costs, or time-sensitive opportunities.How it works

1. Application and approval: You apply for a business line of credit through a bank or online lender. Lenders assess factors like your business credit score, revenue history, and financial health to determine your creditworthiness and credit limit
2. Credit limit and draw period: Once approved, you're granted a specific credit limit – the maximum amount you can borrow. You'll also have a draw period, during which you can access and repay funds from the line of credit
3. Interest and fees: You only pay interest on the funds you borrow, not the entire credit limit. Interest rates vary depending on the lender, your creditworthiness, and market conditions
4. Repayment flexibility: Repayment terms are flexible. You can make minimum payments or pay down the balance faster if your cashflow allows. Once you repay borrowed funds, that amount becomes available to borrow again

Business line of credit vs. Shopify Capital

While we've focused on distinct Shopify Capital alternatives, remember that the financing models it offers – merchant cash advances and business term loans – are also available through other providers, especially if you're looking to bypass the platform’s invitation-only process.

Learn more about alternative business financing.

Is Shopify capital a good deal?

Shopify Capital can be a good option for Shopify sellers who need fast financing and struggle to qualify for traditional funding, but only if they're invited. Shopify decides who can access their financing based on internal metrics. 

While this pre-qualification can lead to quick approvals and funding, it also creates a lack of transparency. You can't apply directly, and there's no clear way to know why you might be rejected. 

Looking for a transparent Shopify Capital alternative for eCommerce financing? 

With Stenn’s revenue-based financing, you can access up to 150% of your monthly revenue with flexible terms and a fixed fee of 6-9.5% per transaction. Repayments are tied to your sales, so you pay more when you earn more and less during slower periods. 

Don't wait for an invitation – explore our financing options that put you in control.