Shopify Capital will allow the US-based Shopify merchants to apply online and be approved based on account and sales information. The program will allow small businesses to access a wider array of services directly rather than turning to other lenders.
More than that, the money merchants get is often used for long-term investments. In Shopifys pilot program, merchants invested in equipment and inventory, new product launches, and hiring. That means that merchants are pouring capital directly into improving their business, which could translate to increased sales and a higher swipe fee revenue for Shopify.
Working capital programs help fund small businesses that have trouble accessing traditional financing. Banks’ traditional underwriting practices make small business loans expensive to issue. That means banks turn down small business loan applications regularly — half of US small businesses that applied for traditional loans were rejected in the first half of 2014, for example.
What`s more, only half of small businesses with USD 100,000 to USD 1 million of annual revenue received at least some of the financing they applied for from large banks in late 2015. Banks have retreated from this segment because issuing loans to small businesses using the traditional underwriting model is expensive. This leaves a massive amount of unfulfilled loans that reached USD 96.5 billion in Q4 2015.
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