Shopify Small Business Loans
Shopify. It’s become all but ubiquitous in the land of eCommerce. With the same ease that eBay offered to the average consumer to sell – and resell – their items, Shopify is an accessible and easy platform to help bring eCommerce dreams to life. The beauty of the platform is that you don’t need to be a computer nerd or entrepreneurial genius to get started, making it a genuine option for virtually anyone.
Founded in 2006, Shopify no`w powers more than One Million Stores in 175 countries. That’s a pretty giant leap for a company that started when a couple of friends who wanted to sell snowboards realized it wasn’t so easy to get started in eCommerce and decided to design a platform themselves.
Between the steady rise of eCommerce and the Pandemic Projects moving from daydream to tangible reality, people worldwide are grateful for this forum. Shopify enables the launch of small businesses with a relatively low barrier to entry. Not only will they help you launch your business, but they’ll help you fund it with their own Shopify small business loans.
But note, Shopify loans aren’t always ideal for many eCommerce businesses. There is an easier and faster way to get financing – one that has even less risk and is perfectly aligned with your sales cycle.
But first, let’s provide an overview of Shopify small business loans.
Related: The Basics of Funding for eCommerce Businesses
What Are Shopify Small Business Loans?
Nearly 40% of small businesses fail for reasons related to cash flow – whether it’s running out of cash or failing to raise enough capital to sustain oneself. That’s two out of five small businesses. A staggering number, isn’t it?
It’s all the more heart-wrenching to think that every one of those businesses was the ambition of a person or group who wanted to claim their patch in the retail market. More than just a statistic, businesses that don’t survive represent someone’s daring to create something of their own.
Shopify small business loans were created with entrepreneurs in mind. Launched in 2016, this lending option is available to Shopify merchants in the UK, Canada, and United States. Rather than mimicking traditional financing options, Shopify small business loans are created with eCommerce in mind.
Shopify doesn’t require a minimum monthly installment with the threat of penalties for missed payments. Instead, repayments are attached to your inventory sales. A portion of the revenues gained from completed sales will be diverted automatically to repay the loan amount. Typically, these are anywhere from 10% to 13%. So, if you borrow $10,000, Shopify requires you to repay $11,000 or $11,300, respectively. It doesn’t matter how quickly you pay the money back, but it does charge a remittance rate of between 12% and 18% for every $1,000 in sales. So, you’ll repay $120 to $180 until the full amount is repaid.
Requirements to Qualify
Under certain circumstances, Shopify small business loans are handy and make a lot of sense for merchants. However, they won’t work for everyone.
To apply for the loan, Shopify must first invite you. Once they screen for initial requirements and identify a qualifying merchant, Shopify will send an invitation to apply. This invitation will appear to eligible merchants as a dashboard message and email invitation.
That’s just the first step, and you aren’t automatically qualified simply because you received an invitation. Shopify will process your application and screen further to determine whether you will receive funds.
To be approved for a Shopify small business loan, you must meet specific criteria:
- Be a Shopify merchant.
- Operate a store in the United States, Canada, or the UK
- Fit a low-risk merchant profile
- Use Shopify Payments or a third-party payment processor
- Process a minimum value of transactions; Shopify sets this benchmark though they don’t publicly disclose what the amount is
Provided you are both invited to apply and subsequently meet all of Shopify’s criteria, you will receive a Shopify small business loan. The application screening process takes up to five days to receive approval and another day or so for you to receive your cash.
How Can You Use a Small Business Loan?
Once you receive your loan, the million-dollar question arises: how will you use it to help your business thrive? Where you invest your funds depends first on a few factors, including your loan amount, your business plan and goals, your sales cycles, including average sales and projections, and more.
There are a few popular and business-savvy ways to use your funds to your advantage.
Help weather the lower periods in your sales cycle
All businesses have ebbs and flows, which means it’s essential to track and analyze your sales records to find patterns. The more you know through your business analysis, the better you can ride the waves.
Of course, some businesses are more prone to highs and lows than others. If you sell a seasonal product like snowshoes or swimsuits, you’ll naturally find predictable dips in sales at specific periods of the year. Shopify small business loans can help you with cash flow to allocate until business picks up again.
Given all the global markets have been through in the last couple of years, it likely goes without saying that less predictable impacts can take a toll. The Covid-19 pandemic has shown all of us just how vulnerable the economy and individual businesses genuinely are.
While the eCommerce industry has seen a dramatic rise due to restrictions on or fears of in-person shopping, retail therapy has been put on the back burner causing discretionary spending to drop.
The pandemic is a poignant example, but other unpredictable circumstances can also affect your business. Inclement weather causing snowless winters or delayed summers is a direct hit to merchants selling seasonal goods.
Boost your inventory
For eCommerce businesses, inventory is both the most costly and crucial aspect of doing business. Many eCommerce entrepreneurs are surprised to find how much holding and maintaining inventory affects their bottom line.
A common challenge for small businesses is finding the cash flow to buy the inventory to keep on hand. Once you outlay the funds, you won’t receive them back until your product sells, of course. Shopify small business loans come in handy when it’s time to order more inventory. You won’t need to choose between operating expenses to keep your business running and putting products on the shelves so you can fulfill orders.
Consider our example of a company selling seasonal items. When sales dip in the off-season, merchants are less rushed to fill the shelves. But what happens when it’s time to ramp up for the peak of the sales cycle? You need to order your products before customers want them.
This is an issue not as familiar to large or multinational businesses. When you’re a large company, you can apply for net terms, allowing you to take the product and repay it based on contract agreements. Small businesses don’t have the same luxury and instead must pay upfront. Additional funds can help you invest where you need them most.
Drive marketing activities
Advertising and marketing outreach is crucial to your business as well. The lifeblood of your business success is found both in finding new business (marketing and advertising) and then meeting the demands of these new customers (inventory). Both are equally vital.
As an eCommerce business, the breadth of the industry can feel like both a gift and a curse. The rapid growth of online shopping invites entrepreneurs to join the industry with less capital investment than traditional brick and mortar stores. eCommerce merchants know there is a large audience of potential customers with vast opportunities to thrive.
Of course, if one merchant has this idea, so do many others. The market is saturated with shops and products, making it challenging to find a foothold amongst the competition. While you can reach customers far and wide without being restricted to store hours and location, you also don’t have the benefit of a High Street location with a lot of foot traffic.
Digital marketing is the answer to standing out in the crowd. Even if you have a specific niche you’re targeting, you still need those customers to find you, trust you, and order your products. Of course, ideally, those would be loyal and repeat customers.
Marketing and advertising don’t come free, so you’ll need capital to fund these efforts. Social media ads, Google ads, and other initiatives require investment. Done well, they will repay themselves, of course.
Many merchants are not experts in leveraging marketing to its fullest potential. In that case, you’ll want to hire an agency to apply their expertise and experience to help your business shine. Shopify small business loans can go toward funding these activities and are repaid when they pay off: as you sell inventory.
Related: How eCommerce Lending Can Help Online Sellers Grow
Pros and Cons of Shopify Small Business Loans
As with anything, there are pros and cons to Shopify small business loans. Before you decide, it’s crucial to understand both sides of the equation and make the decision that’s best for you and your business.
- Applying is easy
Shopify small business loans come to you. You don’t need to pour through options and wonder if you stand a chance to receive funds. Since Shopify will invite you to apply, you’ll be prequalified (to a degree) to make your request. The application process is easy as Shopify already has your basic business information on hand.
- Repayment is also easy
Since you’re already set up with Shopify, repaying your loan is also a breeze on a practical level. Your repayment plan is automatically set up and will be withdrawn from your connected accounts.
- Bad credit? Don’t count yourself out
Banks and lending institutions often take a fine-toothed comb to your financial history. Many solid businesses miss out on funding opportunities for this reason. Since you already have a working relationship with Shopify, you’re more likely to get funding even with poor credit marks.
- It’s expensive
For all of the ease of receiving funding, Shopify tack on heavy interest rates compared to other options. Payments range from 8-17% of every sale you make until your loan is repaid. You must also repay it in full within 12 months. Whatever the rate that Shopify sets, you must repay that interest amount, even if you repay the loan early.
- It’s confusing
The confusing part is related to repayments. The rate at which you’re expected to repay your loan is variable, making it challenging to forecast and account for just how much you’ll need to return to Shopify to settle your debt.
Alternative Funding Options
Financing designed explicitly for eCommerce helps you get the money you need when you need it. Shopify small business loans have been created for eCommerce businesses to offer support when your capital doesn’t quite stretch far enough. But what happens if it’s not the right option for you?
If you’re tired of waiting around for an invitation to apply or the repayment terms don’t fit your business plan, there are alternative options for you.
Onramp offers funding for eCommerce with terms that will fit your budget. Our modern lending approach has an easy application process, a 1% repayment fee and your repayment schedule is aligned with your sales. When you sell inventory, a percentage goes toward payback.
More than a cash solution, Onramp shows up as a partner in your business. No, that doesn’t mean we expect our own business cards or a corner office. That means we offer insights and guidance to help your business shine. We have years of working with eCommerce sellers, and we want to share our knowledge with you.