how does shopify capital work

Shopify Capital Review | What is it and how does it work? i'm stephen with ledger crews and in,this


Updated on Jan 22,2023

Shopify Capital Review | What is it and how does it work?

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Shopify Capital Review | What is it and how does it work?

i'm stephen with ledger crews and in,this video i'm going to review shopify,capital,feel free to subscribe to our channel,and hit that notification button so you,can get more content like this,so shopify capital provides what's known,as a revenue-based lending where they,provide a loan and get paid back as a,percentage of daily sales,what this means is that you'll get a,lump sum of money in a form of a loan,that you could use for inventory,purchases marketing something else and,you're gonna pay that back as a,percentage of your daily sales,i spoke with a shopify capital,specialist and he provided some insights,let me tell you about those,they look at the data from your shopify,store and use ai to determine how much,to offer now,they're unclear on what goes into this,but i can make some guesses,i would assume that they're looking at,cells over time they're comparing to,prior periods,they may be looking at cell's velocity,they may be looking at different metrics,on what's being sold but it's somewhat,of a black box,because shopify has lots of data they're,going to be looking at trends across,various accounts so they probably look,at your account versus comparable stores,they're going to be looking at macro,economic trends like government interest,rates inflation etc but it's this big,black box you don't know how it works,they just are crunching your data to,come up with that offer,there will typically be different,options of lending,with different repayment rates which,i'll go through later,i was told the rates are determined by,the factors that their ai looks at but,you'll see that the the rates change as,the size of the loan changes,these loan offers will change so what,you see one day might change the next,now key note on shopify,capital it's only available in canada,the uk,and select states in the united states,the state will be based on the business,from which you're operating from which,is probably the one that you were,putting in shopify for,i wasn't able to find a list of states,on shopify's website but a recent,fundera article as of june 2022,listed these 14 states,so if you're one of these 14 states,awesome if you're not wait and see,shopify capital is available to eligible,merchants using shopify payments as well,as eligible merchants using third-party,payment gateways,that said they recommend shopify,payments as they state they'll have more,insights to give an offer,not sure what that means but they're,probably going to have take the data,from your payment processing and,calculate that as part of the the,process my guess is they're looking at,return chargebacks that type of stuff,and if they're using shopify payments,it's a little bit easier to crunch that,data,not every store will be eligible so if,you don't see an offer it means that,shopify doesn't feel like you're,qualified and again it's a black box so,you don't know,there's some interesting aspects of,shopify capital,first they don't require personal,guarantees or credit checks,this is great for newer businesses,or those with poor business or personal,credit because traditional lenders will,usually require those things,that said it probably means that you're,paying more for this loan and you'll see,that when we go into the terms,the shopify capital specialist i spoke,with says they don't like to have loans,out for more than 10 months so be aware,of that and that will probably go into,the calculations if you look at the,numbers,now an interesting aspect is that 85,percent of loan payback a merchant is,open for more funding,and the loan doesn't get stacked so,there's no double payback rate just,means you can create an additional loan,and pay it back,separately,loans will be deposited within three to,five days of a request being reviewed,and approved so even though,you have that offer they're still going,to go back and probably do an additional,review process which again is a little,bit of a black box,all right let's dive in and look at the,details of an offer from one of our,businesses soltaskana this is a business,that we own so we're able to show you,some details,if you're eligible for shopify capital,you're going to find an offer on your,home page,if you scroll down in your store you're,going to see something like this,let me go ahead and click on this here's,my offer,you're going to see three different loan,amounts,you're going to see three different,daily sales repayment rates,and obviously three different amounts of,interest,if you want to go ahead and proceed with,the loan you click on the request button,and go through the process,but let's break down the numbers and see,what this means,all right let's break the numbers down,so i've got my loan amounts,i've got my payback amounts,and i've calculated the interest for,each of those offers,and then i've calculated what would the,interest as a percentage of the loan,amount be,so you can see the more that you're,taking out there's more risk and,therefore the interest rate is higher,i have assumed let's say it's a 10 month,payback,this is what the effective apr,annualized percentage rate would be,now in reality,based on the velocity of your store,you're probably going to pay these back,faster and so your apr could be,effectively higher,so you got to consider that these are,not cheap,loans let's take a look and compare,these rates to what we're seeing,right now at this time which is july,2022.,all right let's compare these rates,which are around 9 to 15 percent apr,compare that to say an sba loan again,this is being recorded june july 2022,you can see that sba loan rates are,seven to nine percent,or 7.5 to 9.5 percent,the,difference is the,length of the loan and the amount of the,loan so these are definitely cheaper,loans,if i were to look at other things like,lines of credit,you would find that they will be,probably somewhere in between they could,be higher than a shopify loan,lines of credits can be all over the,place,so take that into consideration,the reason why a lot of sellers do,shopify capital or other revenue based,loans is simple,traditional banks don't like to lend,where there isn't collateral like a,building or a vehicle,inventory can be an exception but that's,like the only asset that you can lend,against with a traditional ecommerce,business unless you have those other,types of assets which a lot of them,don't,traditional banks will look at a lot of,information like business credit,personal credit business financials etc,and,shopify capital does not,traditional banks will likely require,personal guarantee meaning you are,personally on the hook to pay back the,loan if the business cannot,for all of these reasons shopify capital,can be a good option,as it is a much simpler loan,uh to obtain,as well as pay back,that said there are costs of the loan as,we saw,i would be very thoughtful on using,shopify capital grow your business,because you're going to pay a lot to do,that,and you probably want to look at more,traditional lending that's going to come,at a lower cost of capital over time,you want to make sure that that lending,is driving growth and or profitability,either in the short term or the long,term or this loan can become a burden,for you,with this in mind shopify is best used,for critical things like inventory,purchases,or advertising that has a quality return,on ad spend so bottom line is,can be useful but be very thoughtful,about how you shopify capital alright if,you found this video helpful like it,ask me a question in the comments i'm,happy to answer it and be sure to,subscribe to our channel where you'll,get more content like this and if you,need help with your ecommerce accounting,reach out to ledger gears via the link,below

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