Can you get a loan for a Shopify store?Shopify, a prominent e-commerce platform, plays a pivotal role in the online landscape. It serves as the digital home for over 150,000 British manufacturers, retailers, artists, and charitable organizations. As the realm of e-commerce experiences relentless growth, businesses operating on Shopify are faced with the challenge of scaling up.

Many of these merchants encounter financial constraints that impede their expansion. Fortunately, a solution exists in the form of e-commerce loans. These financial instruments offer Shopify vendors the means to obtain the necessary capital for covering expenses and broadening their market reach.

Continue reading to explore the options available for e-commerce loans, not only through Shopify but also from a diverse array of lenders

What is a Shopify loan?

Shopify extends financial assistance to its affiliated businesses through its specialized loan offerings. The platform presents two distinct short-term loan products: Shopify Capital Loans and Shopify Merchant Cash Advances.

While both options are available to businesses in the United States, UK-based businesses exclusively have access to the Merchant Cash Advances. It’s important to underline that Shopify merchants are only eligible to apply for a Capital Loan or a Merchant Cash Advance when they receive a specific invitation from Shopify.

Now, let’s delve into the mechanics of Shopify loans:

Shopify loan structure

Shopify customizes the credit limit, fees, and interest rates for each merchant on an individual basis. The specific amount borrowed, associated fees, interest rate, and the daily repayment rate are all contingent upon the merchant’s sales volume on the Shopify platform and their assessed risk profile. As a general rule, merchants with higher sales on Shopify and lower risk profiles will have the opportunity to borrow larger amounts with lower associated costs

Shopify capital merchant cash advance (UK and US businesses)

In both the United Kingdom and the United States, Shopify provides a financing option known as the Merchant Cash Advance (often referred to as a Shopify Payments Loan Advance).

This unique offering entails merchants borrowing a lump sum in exchange for a predetermined fixed fee. Repayment is structured around a percentage of the daily sales generated by the merchants, continuing until both the lump sum and the fixed fee are completely paid off. The specific lump sum available for borrowing and the daily repayment amount are shaped by the scale of the merchant’s sales on the Shopify platform and their risk profile.

Shopify capital loan (US businesses only)

Shopify Capital Loans furnish merchants with a lump sum in exchange for a predefined borrowing cost. This combined amount, comprising the loan and the fixed borrowing cost, is referred to as the “total owed.” After the loan amount is transferred to the merchant’s business bank account, a portion of their daily sales is remitted to Shopify until the “total owed” is fully repaid.

How much can I borrow with a Shopify loan?

The borrowing capacity for Shopify merchants hinges on the magnitude of their sales within the Shopify platform and their risk evaluation. In general, the more substantial the sales and the lower the perceived risk, the greater the borrowing potential.

It’s important to note, though, that Shopify does not factor in sales conducted through other e-commerce platforms, brick-and-mortar stores, or business-to-business (B2B) transactions.

A substantial portion of a merchant’s revenue generated outside the Shopify ecosystem is not taken into account. As a result, Shopify loans may fall short of meeting the financial requirements of certain online businesses.

When are Shopify loans used?

Shopify loans offer flexibility in how they can be utilized for a wide range of business endeavors:

  1. Procuring inventory to stock your shelves.
  2. Meeting the expenses associated with warehousing solutions for storing stock.
  3. Financing production spaces for manufacturers and artists.
  4. Supporting marketing initiatives to boost your brand’s visibility.
  5. Addressing temporary cash flow challenges arising from B2B customers who make purchases outside the Shopify platform.

What does a typical Shopify loan look like?

In the United Kingdom, Shopify extends financial assistance through a mechanism known as a “merchant cash advance.” How does this arrangement function?

Here’s an illustrative example of a typical Shopify merchant cash advance:

  • Shopify provides a merchant with £5,000, against a fixed fee of £650, resulting in a total repayment obligation of £5,650 (comprising the initial lump sum and the fee).
  • The £5,000 lump sum is deposited into the merchant’s business bank account.
  • To settle the £5,650, Shopify collects 10% of the merchant’s gross daily sales until the full amount is repaid.

Upon the merchant repaying more than 25% of the loan balance, they gain the option to clear the remaining balance in a single lump sum paymen

How to repay your Shopify loan

Shopify loan repayments are seamlessly integrated with the merchant’s sales activity on the platform. Whether it’s a merchant cash advance available in the UK and US or a capital loan available solely in the US, there’s no fixed deadline to settle the total owed.

Instead, repayments ebb and flow in sync with the magnitude of the merchant’s sales. In essence, the more they sell, the larger their daily repayments become, leading to a quicker loan payoff. In times of slower sales, payments to Shopify decrease, which naturally extends the loan repayment period.

What are the alternatives to a Shopify loan?

Shopify loans are exclusively accessible through invitation, which can potentially leave some e-commerce merchants grappling with insufficient funding and missed business opportunities.

Thankfully, several alternative lending options cater to Shopify traders without necessitating an invitation. These alternative loan categories encompass:

  1. Merchant Cash Advance: Similar to Shopify’s merchant cash advance, the borrowing amount is calculated based on total debit and credit card sales. Most lenders consider all card sales, not just those on Shopify, potentially allowing for higher borrowing sums. Repayment periods may be flexible, similar to Shopify, or fixed, often around 12 months. Given that card sales serve as collateral, personal guarantees or additional assets like real estate are typically not required. Poor credit may not be a hindrance to securing funds.
  2. Secured Loan: This term loan, typically spanning 1 to 3 years, involves monthly repayments. Borrowers are required to provide collateral or a guarantee to safeguard the lender’s interests. Poor credit typically does not pose a significant barrier.
  3. Unsecured Loan: Also a term loan, generally with a 1 to 3-year tenure, repaid through monthly installments. No collateral is needed, but good credit is often a prerequisite. The maximum loan amount may be lower compared to a secured loan, with potentially higher interest rates and fees.
  4. Asset Finance: Tailored for substantial loans aimed at acquiring bulk inventory, machinery, commercial properties, or expanding workspace and storage facilities. Shopify manufacturers and retailers looking to boost production or purchase inventory at wholesale prices can benefit. The assets acquired serve as loan security, reducing the need for additional collateral. Poor credit is typically not a significant hurdle.
  5. Invoice Finance: Capital is provided based on the value of the borrower’s accounts receivable. Suitable for traders conducting B2B sales beyond the Shopify platform, particularly in cases where customers may have delayed payments. Up to 90% of the invoice value can be advanced as soon as the invoice is issued. The borrower’s invoices act as loan security, generally without the requirement for additional collateral. Poor credit is usually not a significant impediment.
  6. Revolving Credit Facility: Operates akin to a bank overdraft, offering borrowers access to an open credit facility as needed. Repayment is facilitated from incoming business receipts, and it may require a personal guarantee and/or collateral, especially if the borrower’s credit is subpar.
  7. Business Credit Cards: Designed exclusively for business use, these credit cards often come with higher credit limits and lower interest rates compared to personal credit cards. Collateral is usually not required, though good credit may be a prerequisite.
  8. Startup Loan: Ideal for new entrants to the Shopify platform, these loans provide seed capital to kickstart a business. Government funds may be accessible for this loan category. Typically, no additional collateral is required, although a good credit history may be necessary.

How to use this funding to scale your Shopify business

In the realm of business, stagnation is seldom an option. Your organization is either on a path of growth or contraction, and undoubtedly, expansion is the coveted outcome. Achieving growth often necessitates capital, a resource that many online businesses find in short supply.

This is where borrowing becomes a practical and strategic move. Alternative loans can serve as the catalyst propelling Shopify businesses to the next echelon, employing various tactics:

  1. Bulk Inventory Procurement: Acquire inventory in larger quantities to negotiate lower wholesale prices, consequently elevating profit margins.
  2. Prompt Supplier Payments for Discounts: Opt to settle supplier invoices sooner in exchange for discounts. Ensure that the discount received surpasses the interest rate incurred on the borrowed amount.
  3. Expand Warehouse Capacity: Invest in additional warehouse space to accommodate a larger inventory, preventing late delivery issues and ensuring satisfied customers.
  4. Short-Term Promotions: Launch short-term promotional campaigns to expand your customer base, even if it involves sacrificing immediate profits. The aim is to reap substantial gains in the mid-term.
  5. Debt Refinancing: Utilize long-term, more cost-effective loans to settle high-interest short-term debt, thus optimizing your financial strategy.

Applying for alternative Shopify funding

Before initiating the application process for an alternative Shopify loan, it’s crucial to ensure that your documentation is well-organized and up to date. The specific requirements may vary depending on the type of loan you’re seeking, but the following documents are commonly requested by lenders:

  1. Recent Three-Year Bank and Tax Records: Providing financial records from the past three years is typically part of the application process.
  2. Cash Flow Forecast: Lenders often require a detailed projection of your cash flow to assess your financial stability.
  3. Credit/Debit Card Sales Details: Particularly relevant for merchant cash advances, these details help lenders gauge your potential borrowing capacity.
  4. Profit and Loss Statement and Recent Balance Sheet: These financial statements offer insights into your business’s financial health and performance.
  5. Details of Existing Debt: Lenders may want to know about any outstanding debts your business currently has.
  6. List of Major Customers and Suppliers (if B2B): For B2B-oriented businesses, providing information about key customers and suppliers is pertinent.
  7. List of Assets: This may include details on property, inventory, or other valuable assets owned by your business.

A Pro Tip: Some lenders might require a personal guarantee from business owners or directors to secure the loan. In such cases, they will assess their personal credit scores. To avoid any complications arising from errors in your credit report, it’s advisable to regularly check both your business and personal credit scores before proceeding with your loan application.

How to find the best options

Navigating the landscape of alternative loans for your Shopify business can be a complex endeavor. Determining whether short-term or long-term borrowing is more suitable, assessing the borrowing capacity, evaluating interest rates, fees, and considering personal guarantees and collateral can be daunting tasks. Acquiring the right funds, at the most competitive rates, while minimizing risk, demands a thorough understanding of all available options.

Variety is key, and this is where the expertise of a broker proves invaluable. Unlike individual lenders who may offer a limited selection of loan products, brokers like PDQ Funding provide access to a diverse network of lenders, offering you a wide array of loan types to choose from. This diverse choice empowers you to select the financing solution that best aligns with your unique business needs and financial goals.

Get started with PDQ Funding

Whether your goal is to bolster your inventory or address cash flow challenges, PDQ Funding offers a tailored Shopify loan solution for you. Even if you’ve encountered rejection from other sources, there’s still a chance to obtain the necessary funds. The application process takes just a few minutes, and within less than 24 hours, your bank account could be infused with the required capital.

Fast-track the growth of your online business. Reach out to PDQ Funding now to secure your Shopify loan today.

Business Finance Expert at PDQ Funding | + posts

Lee Jones is a seasoned Business Finance Specialist with over two decades of invaluable experience in the financial sector. With a keen eye for market trends and a passion for helping businesses thrive, Lee has become a trusted advisor to countless organizations seeking to navigate the complexities of finance.