Updated: EDC backs Shopify Capital cash advances

One of Ottawa’s hottest tech firms is hoping to accelerate its growth by strengthening a program that gives cash advances to its customers.

On Tuesday, Shopify (NYSE:SHOP)(TSX:SH) said it had reached an agreement with Export Development Canada to insure merchant cash advances offered by Shopify Capital.

Under the agreement, Shopify – which enables companies to set up an online store, in addition to offering other commerce services – will be protected against the risk of non-payment.

Shopify Capital was launched in April and extends cash advances to entrepreneurs to buy equipment and inventory, launch new products, hire more employees and add new channels and products.

It’s promoted as a way of helping small businesses grow without borrowing money or giving up equity in their business, Shopify said when it launched the program.

The benefits to Shopify are simple: The faster its merchants grow, the faster Shopify grows.

“Everyone wins,” said Brett O'Grady, Shopify’s head of treasury and risk.

Currently, merchants in the U.S. who meet certain criteria are eligible to receive funds, although Shopify plans to expand the program to more merchants in the coming months.

The cash advances are not interest-bearing loans. Instead, Shopify purchases a merchant’s future receivables at a discount. Retailers receive a lump sum of cash in exchange for a percentage of their daily sales until they’re remitted the total amount of receivables Shopify purchased.

One example where Shopify Capital would come in handy is a flash sale, where a retailer invests significantly in online marketing and inventory in a short burst.

“Traditional financing, like a bank and other means, can’t turn around quick enough to suit these merchants' requirements,” Mr. O'Grady said.

As of June 30, Shopify Capital has advanced more than $5 million to merchants. Mr.O'Grady declined to discuss the program’s default rate or disclose the financial terms of the EDC agreement.