Ready to invest in the growth of your Shopify store? Whether you’re going to invest in inventory, a new product, a marketing campaign, or a new warehouse, you’ll likely need financing to help cover the costs. The good news is, there are a lot of financing options to choose from. The tricky part is finding the right one. To help you make that decision, here are 5 top funding options for Shopify stores:
1. Shopify Capital
You could start your financing search by logging into your Shopify account and looking for an offer from Shopify Capital, which provides Shopify users with merchant cash advances and business loans up to $1 Million.
Shopify Capital is currently designed as an invite-only loan program, which means you can only apply if you get a pre-qualified offer. While their eligibility requirements are not shared publicly, their decisions are based on your Shopify business history. At an absolute minimum, you need to use Shopify’s point-of-sale platform or website hosting services and have a good Shopify track record.
If you get a lending offer and decide to apply, their application process requires minimal paperwork, has no credit checks, and promises a quick turnaround. According to their website, you could receive funding within days of accepting an offer.
As far as payment goes, they deduct a certain amount from your sales every day. The amount is based on a fixed percentage rate, which means payments are higher on busy days and lower on slow days.
Why use Shopify Capital: You have a good offer in your Shopify account, do most of your business on Shopify, and want to invest in growth.
2. Payability Instant Advance
Another great option for your Shopify store’s growth is a Payability Instant Advance, which advances you 75%-150% of your monthly sales, up to $250,000. Payability is an independent financing company designed specifically for eCommerce and marketplace sellers who want to bridge cash flow gaps and take their eCommerce businesses to the next level.
Payability can be used alongside or in the place of Shopify Capital. Unlike Shopify Capital, you can apply directly to Payability and talk to a real person about your application and offer. What’s more, if you sell on other platforms such as Amazon, Walmart, or Newegg, you can connect those accounts and get a funding decision based on your entire eCommerce portfolio – not just one of the channels you sell on. The process requires absolutely no credit checks — plus, you could get your advance in as fast as 24 hours.
Unlike other options that hold you to the full fee no matter how soon it’s paid back, you’ll get a payment rebate for every week your Instant Advance is paid back early. Pair your Instant Advance with Payability Instant Access to get your Amazon and other marketplace payouts the next day, every day.
Why use Payability: Payability is best for eCommerce businesses selling on Shopify and/or online marketplaces such as Amazon. It’s great for multichannel eCommerce businesses looking to get financing based on all of the channels they sell on. Or those looking for an alternative or supplement to Shopify Capital, Amazon Lending, or traditional financing.
3. Traditional Bank Loans
Traditional banks offer high-dollar business loans with long repayment terms and low interest rates. They’re certainly an attractive option for small businesses. However, they have a very long turnaround — we’re talking several weeks or even months — because the application and underwriting process is outdated and requires a lot of paperwork. Not to mention only the most established and successful SMBs get approved as approval rates are low for small businesses. Banks tend to view most SMBs as too small or too risky to fund, especially if most of your business is online.
If you apply for a bank loan, you’ll likely be asked for bank statements, other financial records, years of tax returns, a business plan, and more. They also put a lot of emphasis on your personal credit as a business owner, so keep that in mind. They will likely ask you to also put up collateral such as your house that will be forfeited to the bank in the event that you can’t repay the loan. In general, banks are risk-averse organizations and tend to approve highly successful businesses that have a storefront or other physical location. As a result, approval rates for small and online businesses are low.
Why use traditional bank loans: Traditional bank loans are worth considering if you have a well-established business, stellar personal credit, and are planning way ahead for growth.
4. Credit Cards and Lines of Credit
Credit cards and lines of credit function similarly. For example, they allow you to make investments as you need to, pay only for what you use, and replenish your limit/amount as you make payments. The primary difference is that credit cards are just that — credit — while lines of credit give you access to actual cash. Depending on the provider, you might have to pay an annual or monthly fee to keep an account open.
The application process also depends on the provider. In general, you can get credit card approvals the same day you apply, while lines of credit (especially from traditional banks) can take longer. Your credit will be pulled and will impact your interest rate.
If used responsibly, a credit card will allow you to make purchases free of charge. In other words, pay your balance in full and on time every month, and you won’t have to worry about compounding interest.
Why use credit cards or lines of credit: Credit cards are popular for early-stage businesses that are building up cash reserves. Lines of credit are helpful for those looking for a “rainy day” fund — i.e. cash they can lean on if there’s an unexpected expense or investment opportunity.
5. Equity Financing
Equity financing — or venture capital (VC) — is especially popular for large DTC brands looking to scale even more. By definition, it is the process of raising capital through the sale of equity. In other words, you raise money from VCs and, in exchange, give them partial ownership in your company. Because you give them partial ownership, you are not expected to pay them back or pay interest. However, you do have to give over some control of your business to them.
Most VCs want to see that you have an impressive team, a minimum viable product, and a defined customer. You’ll need to put together a pitch deck and presentation that gives an overview of your business — the product you’re selling, the market opportunity, your business model and financials, funding needs, and leadership.
Think of the T.V. show Shark Tank: retail and eCommerce businesses pitch VCs to invest a certain amount in their products in exchange for a certain amount of ownership. You can propose the amount and ownership percentage, but they might have something else in mind.
Why use equity financing: You’ve built a large and well-known eCommerce brand with the potential to scale exponentially as most VCs expect a return of 10x-15x their initial investment. You are okay giving up a part of your business in exchange for what the VC brings to the table.
The right financing for your Shopify store
Only you can decide what the right option is for your Shopify store. Hopefully this guide has helped you narrow things down. At the end of the day, you need to consider how much you need, how soon you need it, what you need it for, and how you feel about keeping or sharing control over your business’s long-term growth. For more on your financing options, discover the top ways eCommerce businesses can get funded and the difference between a loan and a cash advance.
About the Author
Victoria Sullivan is a Marketing Manager at Payability. She has over eight years of social media, copywriting and marketing experience. Prior to joining the Payability team, Victoria developed social media content and strategies for top technology brands such as Skype and Samsung. She holds a degree in Advertising from Syracuse University’s S.I. Newhouse School of Public Communications. She can often be found in a yoga class or working on her fashion blog.