Cash advance program focuses on small biz
Cash advances, not loans, of up to $500K available for qualifying companies
Shopify Inc. will begin providing cash advances directly to online merchants in Canada, as the Ottawa-based ecommerce giant rushes out products to support small businesses through the COVID -19 pandemic.
In an interview with the Financial Post, chief operating officer Harley Finkelstein said that merchants on their platform will qualify for funds ranging from $200 all the way up to $500,000, depending on the nature of their business.
Originally launched in 2016, Shopify Capital was originally only available to e-commerce merchants in the United States, but in late March the company expanded eligibility to the United Kingdom.
Shopify took great pains to emphasize that the Shopify Capital program provides “cash advances” — not loans — to the merchants who use their platform.
“It’s not a loan. It’s a cash advance, because if you don’t sell anything tomorrow, we’re not taking anything out,” Finkelstein said.
“No credit checks, no deadline on the repayment. The business is not obligated to pay for anything if they’re not making sales. There’s no interest; it’s a factor rate, which is different. And it’s not secured with any collateral.”
The cash advances are insured by
Export Development Canada, and Shopify says that the advances are low risk and seamless, because the company can see the merchant’s selling history and has all of the necessary financial data to make underwriting decisions.
Finkelstein said Shopify is adjusting eligibility criteria on the fly, as the COVID-19 pandemic upends markets and dramatically changes consumer behaviour.
“It’s really good to be a tech company in that way, because we can basically change our underwriting algorithms, we can change our machine learning, kind of on a dime,” he said. “So we don’t necessarily need to look back over a year, we can look back over a week or two or three, and say, ‘OK, we see how this business is changing.’ ”
Finkelstein used a meat wholesaler in Ottawa as an example of how Shopify Capital can help.
“If you’re going to change your business from being a wholesale meat supplier for restaurants to being a direct-to-consumer meat retailer like premiummeats.ca, you may actually need a little bit of capital to change those things around,” he said.
“You may need money for marketing, you may need money for inventory, so waiting three weeks in this current climate is not acceptable.”
You may need money for marketing, you may need money for inventory.
In March the company also announced that it will make an extra US$200 million available for Shopify Capital.
With more than US$800 million already provided in cash advances since the program started in 2016, the company is on pace to pass the $1 billion mark this year.
Since social distancing measures ramped up in March, Shopify has been scrambling to provide measures to support the e-commerce merchants who use their online platform.
Shopify enables more than a million merchants with payment processing, order management and other services that make online commerce easier, with many of those merchants being small “side hustle” hobbyist businesses.
Along with expanding Shopify Capital, the company has made email marketing tools available and added a curbside pickup tool, which allows bricks-and-mortar retailers to take online orders.
The company has also made their platform available for a free 90-day trial for new merchants, instead of the normal 30 days.
Finkelstein said in spite of the economic wreckage caused by COVID -19, the company is actually seeing an uptick in new merchants.
In fact, even though it seems counterintuitive, rough economic times may actually be good for Shopify.
In 2008 the company saw major growth as some people who lost their jobs in the global financial crisis turned to e-commerce to make a bit of money.
Finkelstein said something similar is happening now, with the added element that social distancing measures mean that online selling is especially important right now.
“In the last two weeks of March, we saw global store creation increase. It grew by about 20 per cent each week,” Finkelstein said.
“So more people are now thinking about entrepreneurship, people that lost their jobs or looking to supplement their income. People who had a side business are looking to double down on that side business. People who had a hobby are looking to commercialize that hobby.”
Shopify shares closed up almost seven per cent in Toronto on Monday, trading at $887.56, up about 75 per cent in the past month, and pushing its market value over $103 billion.
Investors piled into the tech stock last week after its chief technology officer Jean-Michel Lemieux said the Ottawa-based company was seeing U.S. Black Friday-type of traffic as it brings “thousands” of businesses online during the COVID-19 pandemic. Financial Post