Unlocking Funding Opportunities for Dropshipping Businesses on Shopify Using Shopify Capital

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Are you looking to secure funding for your dropshipping store and accelerate its growth? Consider Shopify Capital, but before you take out a loan, it’s important to understand all the details.

In this comprehensive guide, we will explain how Shopify Capital works for dropshipping stores, who is eligible, and what the fees entail.

We will also discuss the pros and cons of utilizing Shopify Capital, allowing you to make an informed decision about whether it’s the right solution for your business.

What is Shopify Capital?

Shopify Capital is a service provided by Shopify that offers funding solutions for businesses using the Shopify ecommerce platform. Although Shopify Capital is not exclusively for dropshippers, it is available to all Shopify users.

What sets Shopify Capital apart from traditional loans is its consideration of a merchant’s Shopify sales history and performance metrics. This means that even if you don’t qualify for traditional funding options, you may still be eligible for Shopify Capital.

How does Shopify Capital work?

Shopify Capital offers two types of funding: merchant cash advances and loans. The main difference between these options lies in how you repay the funds.

Let’s explore each option in more detail.

1. Merchant cash advances

Merchant cash advances involve Shopify providing you with a lump sum of money in exchange for a fixed fee. The repayment of this loan is based on a percentage of your future daily sales.

For example, if Shopify Capital offers you a $10,000 merchant cash advance with a fixed fee of $1,500, the total repayment amount would be $11,500.

With a remittance rate of 10%, Shopify Capital would receive 10% of your store’s gross daily sales until the entire $11,500 is repaid. The repayment period can vary depending on your sales and remittance rate.

It’s worth noting that Shopify Capital does not impose a strict deadline for repaying the cash advance.

As of 2024, merchant cash advances are available throughout the entire United States, as well as in parts of Canada, the United Kingdom, and Australia.

2. Merchant loans

Merchant loans involve receiving a fixed sum of money in exchange for a fixed borrowing cost. The repayment is based on a percentage of your daily sales.

When your sales are low, the repayment amount reduces, and when your sales are high, the repayment increases. However, merchant loans must be repaid within a specific period, which is currently 18 months.

During the first six months, you are required to repay 30% of the loan amount. By the end of the 12th month, 60% of the loan must be repaid, and the entire loan amount must be repaid by the 18th month.

As of 2024, merchant loans are only available in a few states in the United States.

How much money can you receive from Shopify Capital?

The amount of funding you can receive from Shopify Capital depends on various factors, including your store’s revenue, overall health, and previous loan history.

Based on these factors, Shopify Capital payouts can range from a few thousand dollars to millions.

What are the requirements for Shopify Capital?

Before securing funding from Shopify Capital, you must meet specific requirements.

The minimum requirements for Shopify Capital include:

• Using Shopify: Your store must be hosted on Shopify to be eligible for Shopify Capital.
• Location: Shopify Capital is currently available in selected regions within the United States, Canada, the United Kingdom, and Australia.
• Minimum activity: Your store must have been operating on Shopify for at least 90 days.
• Compliance: You must comply with Shopify’s Acceptable Use Policy and Terms of Service.
• Shopify Payments: Your store must have Shopify Payments active to qualify for Shopify Capital.
• Loan history: If you have previously taken out a loan from Shopify Capital, your repayment history and the status of your existing advances or loans will be considered in determining your eligibility.

In addition to the above requirements, Shopify also considers other factors, such as a machine learning algorithm that evaluates your store’s performance and potential business credit checks.

It’s important to note that Shopify Capital does not conduct personal credit checks, which is a standard practice with traditional loans.

5-Step walkthrough of using Shopify Capital for dropshipping

If you’re considering using Shopify Capital for your dropshipping store, follow this five-step process to get started:

1. Check if you’re eligible for the loan

To determine your eligibility for Shopify Capital, log in to your Shopify account.

From the admin dashboard, navigate to ‘Settings’ and select ‘Capital’.

If Shopify Capital is not available in your region, the Capital settings option will not be visible.

If you meet the eligibility criteria and are located in the appropriate region, you will see an invitation or a message indicating your qualification for a loan or cash advance.

2. Receive an offer from Shopify

If you are eligible for Shopify Capital, you can apply for funding through the ‘Capital’ settings page in your Shopify admin dashboard.

Shopify will require you to verify your identity and provide your business details. If you do not already use Shopify Payments as your payment provider, you will need to switch to it during the application process.

Once you have entered the necessary information, click ‘Apply Now’ to submit your application.

After you submit your application, it will be reviewed within one to three days. If approved, you will receive the funds within two to five days.

3. Repayment to Shopify

Repayment to Shopify Capital is automatically calculated as a percentage of your daily sales. A portion of your sales revenue will go towards repaying the loan on a daily basis.

The daily remittance begins within two days after you receive your funding. You can track your repayment progress through the Shopify Capital section in your admin panel, which displays the amount repaid and the remaining balance.

4. Allocate your funds

Once you have received funding from Shopify Capital, determine how best to allocate the funds to benefit your dropshipping store.

According to Shopify, the funds can be used for various purposes that contribute to your business’s growth. Consider using the funds for the following:

• Purchasing inventory: Use the funds to buy inventory from 3PL suppliers if you plan to expand your dropshipping business.
• Advertising costs: Allocate the funds for advertising when your budget is limited or when payment processors like Stripe or PayPal hold your funds.
• Website upgrade: Consider hiring a professional to redesign and improve your website’s functionality.
• Product line expansion: Invest in testing new product lines that show potential for increased sales and profitability.

Regardless of how you spend the funds, keep detailed records to track their impact on your business.

5. Apply for a new loan

Once you have repaid 65% of your current loan, you become eligible to apply for a new offer from Shopify Capital.

If your experience with the initial loan was positive, and it contributed to the growth of your dropshipping business, consider applying for another loan.

Similar to the first loan, funds from the second loan will be deposited into your account within two to five days upon approval. Repayment for the second loan does not begin until the first loan has been fully repaid.

The pros and cons of Shopify Capital

To determine whether Shopify Capital is the right option for your dropshipping business, consider the following pros and cons:

The pros

Here are the advantages of using Shopify Capital for dropshipping:

1. Quick application process

The eligibility check and loan application process are quick and straightforward. Shopify typically reviews applications within one to three days, ensuring a fast response time.

2. Fast access to funds

If your application is approved, you will gain access to the funds within two to five days. This is considerably quicker than obtaining funding through traditional bank loans.

3. Flexible repayment

Repayment to Shopify Capital is based on a percentage of your daily sales, allowing for flexibility in the amount repaid. When sales are lower, the repayment amount decreases, and when sales are higher, more is repaid.

Shopify Capital also does not impose a strict deadline for repaying merchant cash advances, providing additional flexibility.

4. No credit check

Shopify Capital does not require a personal credit check to obtain a loan, although a business credit check may be conducted. This accessibility benefits merchants with less-than-perfect credit scores.

The cons

Consider the following disadvantages of using Shopify Capital:

1. Not available for non-Shopify users

Shopify Capital is exclusively available to dropshippers using the Shopify platform. If your store is hosted on another platform, such as BigCommerce or Wix, you cannot access Shopify Capital.

2. Strict qualification

Not all dropshippers meet the eligibility criteria for Shopify Capital. Requirements include a minimum of 90 days of Shopify usage, a steady sales flow, and geographic location in a supported region. Therefore, most dropshippers may not be able to benefit from Shopify Capital.

3. Repayment structure

While the repayment structure is flexible, a portion of your sales will always go towards repaying the Shopify Capital loan. If your profit margins are already tight, this can significantly impact your bottom line.

FAQs about Shopify Capital

To further clarify Shopify Capital, here are answers to commonly asked questions:

Conclusion

In conclusion, Shopify Capital can be a valuable tool for accelerating the growth of your dropshipping business. However, its availability is currently limited to specific regions, including parts of the United States, Canada, the United Kingdom, and Australia.

If you qualify and decide to utilize Shopify Capital, ensure you have a repayment plan in place to avoid being burdened with a loan that you cannot repay. Don’t forget to read our comprehensive guide on how to start dropshipping to gain even more valuable insights into the world of dropshipping.

In conclusion, Shopify Capital provides funding solutions for dropshipping stores on the Shopify platform. While there are criteria and limitations to consider, the quick application process, fast access to funds, flexible repayment options, and lack of a personal credit check make Shopify Capital an attractive option for qualifying merchants.

However, it is important to carefully review the pros and cons before deciding if Shopify Capital is the right choice for your dropshipping business. For more information and guidance on dropshipping and other essential tools, The Dropship offers the best group buy tool for dropshipping service to help boost your business’s success.