Need funding for your eCommerce business? Shopify Capital and Merchant Cash Advances (MCAs) are two popular options. Here's how they compare:
- Shopify Capital: Designed for Shopify users, offers $200–$2 million, with repayments tied to daily sales. No credit check required, and approval is based on your Shopify store's performance.
- Merchant Cash Advances (MCAs): Available for all businesses, offers quick funding (up to millions) with fixed or percentage-based repayments. Requires financial documents and may include higher fees.
Quick Comparison:
| Feature | Shopify Capital | Merchant Cash Advances |
|---|---|---|
| Platform Requirements | Shopify-exclusive | Platform-agnostic |
| Funding Range | $200–$2 million | Varies, often up to $500,000 |
| Repayment | % of daily sales | Fixed or % of card sales |
| Approval Process | Automated (Shopify data) | Manual (financial documents) |
| Fees | 9–19% of borrowed amount | Factor rate (1.1–1.5) + fees |
| Geographic Availability | US, Canada, UK, Australia | Varies by provider |
Key Takeaway: Choose Shopify Capital if your business is Shopify-based and you prefer flexible, sales-based repayments. Opt for MCAs if you sell across multiple platforms or need fast, high-value funding with fewer restrictions.
Read on for a detailed breakdown of costs, eligibility, and repayment terms.
Basic Structure and Operation
Shopify Capital: Platform-Specific Funding
Shopify Capital is a funding option designed specifically for merchants on the Shopify platform. By leveraging machine learning, it evaluates a merchant's sales and engagement data directly from the Shopify ecosystem, eliminating the need for traditional credit checks.
The program has seen impressive growth. Between 2016 and 2019, Shopify Capital provided over US$3 billion in funding to thousands of merchants. A notable example is Shock Surplus, an auto parts company. They secured approximately US$2 million through three rounds of funding, which helped drive revenue growth and enhance their operations.
Merchant Cash Advances: Third-Party Funding
Merchant Cash Advances (MCAs) offer a different funding route, available to businesses across various sales platforms. These advances are based on factors like monthly sales volume, financial health, and transaction history.
Unlike Shopify Capital, MCAs operate in a less structured regulatory environment, which can sometimes lead to complex terms and contracts. However, they offer significant flexibility, with approvals and funding often completed within 48 hours.
Structure Comparison
Here’s a breakdown of key differences between Shopify Capital and Merchant Cash Advances:
| Feature | Shopify Capital | Merchant Cash Advances |
|---|---|---|
| Platform Requirements | Exclusive to Shopify users | Available across all platforms |
| Funding Range | US$200 – US$2 million | Varies, generally lower amounts |
| Assessment Method | Automated platform data analysis | Typically involves manual review |
| Integration | Built into Shopify admin | Separate system |
| Approval Process | Real-time offers based on platform data | Traditional application process |
| Regulatory Framework | Platform-regulated | Less regulated |
Shopify Capital Review | What is it and how does it work?
Repayment Methods
This section breaks down how different funding options handle repayments, tailoring them to match the ups and downs of your sales.
Shopify Capital: Sales-Based Payments
Shopify Capital offers a repayment model tied to your daily sales. A percentage - typically between 8% and 17% - is automatically deducted from your daily revenue. The cost of borrowing depends on a factor rate, which usually ranges from 1.1 to 1.5. For example, borrowing $10,000 at a factor rate of 1.2 means you'll repay $12,000 in total.
Merchant Cash Advances: Fixed Payments
Merchant Cash Advances (MCAs) follow a different approach, with fixed daily or weekly payments. These payments remain the same no matter how your sales perform. While this structure simplifies planning, it can put a strain on cash flow during slower sales periods.
Payment Terms Comparison
Here’s a quick look at how Shopify Capital and MCAs compare in repayment terms:
| Feature | Shopify Capital | Merchant Cash Advances |
|---|---|---|
| Payment Schedule | Daily percentage of sales | Fixed daily/weekly amounts or percentage of card sales |
| Repayment Period | Up to 18 months | Varies by provider |
| Payment Flexibility | Adjusts with sales volume | Usually fixed regardless of performance |
| Early Repayment | No penalties, but no cost reduction | No penalties, fixed fee remains |
| Fee Structure | 9–19% on borrowed amount | Varies by provider |
The way these repayment models are structured significantly affects your cash flow and overall financial flexibility. Shopify Capital stands out because its payments adjust to your business performance. During high-sales periods, repayments speed up, while slower months result in smaller payments. This adaptability can help safeguard your cash flow, especially if your business experiences seasonal ups and downs.
Qualification Requirements
Shopify Capital: Sales History
Shopify Capital determines eligibility using a machine learning model that automatically evaluates several factors, including:
- Sales performance
- Dispute records
- Customer engagement
- Store age
- Compliance with Shopify's Terms
One notable advantage is that Shopify Capital doesn’t require a personal credit check for pre-qualification. However, in some cases, additional documentation may be requested. This funding option is available to businesses operating in the United States, Canada, the United Kingdom, and Australia.
Unlike traditional funding methods, Shopify Capital focuses on the long-term performance of your business, while Merchant Cash Advances (MCAs) prioritize recent transaction activity.
Merchant Cash Advances: Transaction History
MCAs take a different approach by evaluating a business's recent financial activity. The qualification process typically involves meeting the following thresholds:
| Requirement | Typical Minimum Threshold |
|---|---|
| Credit Score | 525+ |
| Business History | 2 years |
| Annual Cash Flow | $180,000 |
| Documentation | Bank statements, tax returns, processing statements |
To qualify, businesses must provide key financial documents, such as bank statements, credit card processing records, and tax returns. The approval process places significant weight on recent cash flow and credit card transaction volume.
Requirements Comparison
Here’s a quick look at how Shopify Capital and MCAs differ in their qualification criteria:
| Feature | Shopify Capital | Merchant Cash Advances |
|---|---|---|
| Assessment | Automated platform analysis | Manual review |
| Credit Check | Not required initially | Required |
| Business Structure | No trusts or partnerships | Most structures accepted |
| Geographic Availability | US, Canada, UK, Australia | Varies by provider |
| Platform Requirements | Active Shopify store | None specific |
| Documents | Minimal upfront | Extensive |
Shopify Capital simplifies the process by evaluating merchants based on their activity within the Shopify platform, eliminating the need for a separate application until an offer is extended. On the other hand, MCAs involve a more traditional application process, making them a viable option for businesses with limited history or lower credit scores, as long as they demonstrate strong cash flow.
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Fees and Pricing
When it comes to fees, the structure of each funding option highlights their distinct approaches and potential costs.
Shopify Capital: Rate Structure
Shopify Capital keeps things straightforward with two fee models:
- Fixed Fee: For example, borrowing $100,000 with a 13% fee means you’ll repay $113,000 in total.
- Monthly Fee: This option adds a set monthly charge, such as $1,400 per month. Over three months, the total fees would amount to $4,200, while over 11 months, they would climb to $15,400.
Merchant Cash Advances: Cost Breakdown
Merchant Cash Advances (MCAs) come with several cost components that can add up quickly:
| Cost Component | Typical Range | Notes |
|---|---|---|
| Factor Rate | 1.1 - 1.5 | Base multiplier applied to the advance. |
| Origination Fees | $1,000 - $3,000 | One-time upfront charge. |
| Broker Commission | Up to 11% | Percentage of the advance amount. |
| Effective APR | Up to 350% | Varies widely based on the provider. |
"Merchant cash advances are one of the most expensive types of business financing." - NerdWallet
MCAs rely on factor rates (ranging from 1.1 to 1.5) and often include additional costs like origination fees ($1,000–$3,000) and broker commissions (up to 11%). These charges can push the effective APR as high as 350%.
Cost Comparison
To better understand the differences, let’s compare Shopify Capital and MCAs for a $50,000 funding scenario:
| Feature | Shopify Capital | Merchant Cash Advance |
|---|---|---|
| Advance Amount | $50,000 | $50,000 |
| Factor Rate | 1.13 | 1.4 |
| Additional Fees | None | $2,000 (origination) |
| Total Repayment | $56,500 | $72,000 |
| Hidden Fees | No | Possible |
| Early Repayment Benefits | Yes | No |
For instance, if a business receives a $100,000 MCA with a 12% factor rate and a repayment rate of 15%, and averages $250,000 in monthly sales, it would repay $112,000 in just three months. This translates to an effective annual interest rate of 48%.
The comparison underscores how Shopify Capital’s transparent pricing can help businesses avoid unexpected costs, unlike the variable and often higher fees associated with MCAs.
Best Uses and Applications
Once you've compared costs and eligibility, the next step is to determine which funding option aligns best with your business goals. By understanding the structure, repayment terms, and qualification requirements, you can identify the scenarios where each funding option shines.
Shopify Capital: For Shopify-Centered Businesses
Shopify Capital is designed for businesses that are deeply rooted in the Shopify ecosystem. It works particularly well for:
| Business Type | Primary Benefits | Real Impact |
|---|---|---|
| Seasonal Retailers | Preparing inventory for peak seasons | Pashion achieved 375% growth during Black Friday and Cyber Monday with strategic inventory funding. |
| Growth-Stage Stores | Supporting marketing and expansion efforts | Porter Road turned a $1M marketing investment into $11M in sales in 2020. |
| Product-Based Businesses | Expanding inventory or launching new product lines | The Public Pet boosted revenue by 40-50% through expanded inventory. |
Sean Reyes, Founder and CEO of Shock Surplus, shared why Shopify Capital works for businesses like his: "Banks wouldn't lend us a dime because our average cash balance didn't meet their metrics. They don't care if you're pouring all your profits and all your cash back into the business to grow it like we were".
While Shopify Capital is tailored for Shopify merchants, Merchant Cash Advances (MCAs) cater to businesses operating across multiple platforms and channels.
Merchant Cash Advances: Ideal for Multi-Channel Sellers
MCAs are a better fit for businesses that operate across diverse sales channels. These funding solutions are best suited for:
- Businesses with high credit or debit card transaction volumes
- Companies needing quick access to cash
- Retailers managing multiple sales platforms
- Seasonal businesses with fluctuating revenue streams
The global MCA market is expected to grow significantly, reaching $1.4 trillion by 2028.
Selection Guide
To decide between Shopify Capital and MCAs, consider the following factors:
| Factor | Choose Shopify Capital If | Choose MCA If |
|---|---|---|
| Platform Usage | Your business operates primarily on Shopify | You sell across multiple platforms or channels |
| Sales Volume | You have a consistent Shopify sales history | You process a high volume of credit card sales |
| Funding Purpose | You need funds for Shopify-specific growth (e.g., inventory, marketing) | You require cash for general business needs |
| Repayment Preference | You prefer flexible, sales-based payments | You're comfortable with a fixed payment schedule |
One standout example is Hell Babes, a women's apparel brand inspired by motorcycle culture. They accessed Shopify Capital eight times, using the funds to invest in Instagram and Facebook ads. This strategy nearly doubled their sales.
In 2023, Shopify merchants collectively generated $9.3 billion in sales during Black Friday and Cyber Monday. These figures highlight the potential of tailored funding solutions, setting the stage for multi-channel sellers in the next section.
Onramp Funds Overview
When it comes to funding options for eCommerce businesses, Onramp Funds stands out as a solution designed specifically for online sellers. With 82% of small businesses failing due to cash flow challenges, the need for flexible funding options in the eCommerce space has never been more pressing.
Multi-Platform Funding Solutions
Unlike funding options tied to a single platform, Onramp Funds works across multiple eCommerce environments. It supports major platforms such as Amazon, Shopify, TikTok Shop, WooCommerce, BigCommerce, Squarespace, and Walmart Marketplace. Here’s a quick look at what sets it apart:
| Feature | Benefit | Impact |
|---|---|---|
| Revenue-Based Payments | As low as 1% of daily sales | Eliminates fixed monthly payments or minimums |
| Flexible Funding | Multiple offer options | Tailored to fit varying business needs and cycles |
| Quick Access | 24-hour funding | Helps businesses seize inventory or marketing opportunities quickly |
Businesses that partner with Onramp Funds report impressive results: a 60% revenue increase within 180 days of funding, and 75% of customers return for additional funding. These benefits make Onramp Funds a flexible and scalable alternative to platform-specific financing options.
Main Features
- Streamlined Approval Process Onramp Funds connects securely to your sales data through a read-only API, eliminating the need for personal credit checks.
- Flexible Fee Structure Transparent flat fees range from 2% to 8%, offering savings of up to 50% compared to traditional financing options.
"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable time frame once we made sales. The process was quick, easy, and the support was great."
– Jeremy, Founder and Owner of Kindfolk Yoga
These features translate into real-world success for business owners:
"Onramp has simplified cash flow by automating everything: easy to request, set it and forget it payments - quick and fast!"
– Torrie V., Founder and Owner of Torrie's Natural
For businesses generating at least $3,000 in monthly sales, Onramp Funds offers a practical path to growth without the rigidity of traditional financing. Its adaptability makes it a valuable addition to the funding options discussed earlier.
Making Your Choice
Choosing the right funding option for your eCommerce business involves weighing several important factors. Whether Shopify Capital or a merchant cash advance is the better fit depends largely on your business model and specific needs. While we've already looked at structural and cost differences, it’s time to focus on how your operations should steer your decision.
For businesses centered around Shopify, Shopify Capital can be a great option thanks to its seamless integration with the platform. With funding amounts ranging from $200 to $5 million, it works particularly well if:
- Most of your sales happen on Shopify.
- You like the idea of automated repayments tied to daily sales.
- A quick and easy application process without traditional credit checks appeals to you.
- You can meet the repayment thresholds (30% of the loan in 6 months; 60% in 12 months).
On the other hand, multi-channel sellers - those operating across various platforms - might find merchant cash advances a better fit. This approach works well if:
- Your sales come from multiple platforms, not just Shopify.
- Fixed repayment schedules help you better manage cash flow.
- You need funding that exceeds Shopify’s limits.
- Speed is critical, and you need access to capital fast.
| Consideration | Shopify Capital | Merchant Cash Advances |
|---|---|---|
| Daily Impact | ~10% of daily sales | 5–20% holdback rate |
| Term Length | Up to 18 months | 3–18 months |
| Payment Structure | Sales-based | Fixed or percentage-based |
| Platform Requirements | Shopify exclusive | Platform agnostic |
For those seeking more flexible, platform-agnostic funding options, services like Onramp Funds offer revenue-based solutions tailored to your needs.
When deciding, think about your sales volume, growth trajectory, cash flow cycles, and how quickly you need the funds. For instance, a Reddit user shared their experience with Shopify Capital, noting an effective APR of 42% on a $10,000 loan with 17% deducted from daily sales. This highlights the importance of fully understanding the financial impact, not just the upfront terms.
FAQs
What makes Shopify Capital a better funding option than Merchant Cash Advances for Shopify businesses?
Shopify Capital stands out as a funding option tailored specifically for Shopify-based businesses, offering several advantages over Merchant Cash Advances (MCAs). One of its biggest perks is the repayment flexibility. Instead of fixed amounts, repayments are tied to a percentage of daily sales. This means that during slower sales periods, businesses aren’t burdened by rigid payment demands, helping them manage cash flow more smoothly. On the other hand, MCAs often require fixed repayments, which can be tough when sales are unpredictable.
Another standout feature is that Shopify Capital skips the credit check, opening doors for merchants who might struggle to qualify for traditional loans. Plus, it operates on a clear, fixed-fee structure. This straightforward approach eliminates the confusion often caused by the complex terms and fluctuating costs of MCAs.
With its ease of use and merchant-friendly terms, Shopify Capital provides Shopify businesses a practical way to secure funding, expand their operations, and maintain financial peace of mind.
How do Shopify Capital repayment terms handle seasonal sales changes compared to Merchant Cash Advances?
Shopify Capital offers repayment terms that flex with your sales. Since repayments are calculated as a percentage of your daily revenue, they naturally decrease during slower sales periods. This setup can help ease cash flow pressures when business slows down.
In contrast, Merchant Cash Advances (MCAs) typically require fixed daily or weekly payments. These fixed amounts can be harder to manage during off-peak seasons when revenue dips, potentially putting extra strain on your business finances.
How should a business decide between Shopify Capital and a Merchant Cash Advance based on financial needs and sales patterns?
When weighing Shopify Capital against a Merchant Cash Advance (MCA), it’s important to consider your business’s cash flow, repayment preferences, and sales patterns. Shopify Capital provides funding through loans or MCAs, with repayments linked to daily sales. Loans come with an 18-month repayment deadline, while MCAs offer more flexibility since payments adjust according to sales. This makes them a good fit for businesses with unpredictable or seasonal revenue.
On the other hand, MCAs from providers outside of Shopify Capital are often attractive for businesses that need cash quickly and prefer to avoid the structure of traditional loans. These can be particularly useful for companies with seasonal sales cycles. However, it’s worth noting that they usually come with higher costs due to fixed fees. Ultimately, the right choice will depend on your revenue trends, repayment capacity, and financial objectives.
