Shopify is something of a behemoth in the world of eCommerce. Established in 2006, the company has grown to power more than one million stores in 175 countries. If you’re an eCommerce seller, it’s impossible not to have heard of Shopify.
In 2016, Shopify expanded its offering to eCommerce sellers. Seeing an opportunity to leverage their foothold on the market while empowering their merchants, the company established a loan program. Shopify Capital’s purpose is to supply loans to sellers on the platform, boosting their cash flow through cash advances.
To understand Shopify seller loans, it’s essential to know how they work and the pros and cons of the program. With the competitive nature of this saturated market, eCommerce merchants must take advantage of a bit of help when they need it to help their business thrive.
What are Shopify Seller Loans?
eCommerce businesses don’t fit the molds of the long-established retail world. While the benefits are numerous, there are also many challenges. You have access to a much greater pool of potential customers when selling online, but the competition is much more fierce. You’re unbound by business hours, but you also can’t benefit from foot traffic and a nicely merchandised front window.
Traditional loans don’t take the needs of eCommerce merchants into account. The ebbs and flows of sales cycles and dependence on inventory are elements of doing business that are challenging in this realm. High interest rates and mandatory minimum monthly payments can be burdensome at best for eCommerce merchants, particularly when they’ve taken a loan to boost cash flow to weather a slower period.
Shopify seller loans seek to bridge this gap between the lending and eCommerce industries. With two different lending options, the company saw the value in supporting the merchants selling on their platform.
Shopify merchant cash advances serve as an advance on sales transactions. When merchants sell products, a portion of their sales will divert automatically to repaying their advance to Shopify.
Shopify seller loans look a bit more like traditional loans. This option is only available in certain US states at the time of writing. Loans are provided to approved Shopify merchants, and repayments are divided into six repayment cycles over 12 months.
The funds are automatically drawn from your seller account, so you never have to worry about missing a payment due date. If your seller account does not have the funds to cover the repayment, Shopify will charge your alternative payment method.
Related: The Best Financing Options for Online Business
How Do You Get a Loan with Shopify Capital?
Shopify seller loans are only available to prequalified merchants who have received an invitation to apply. The company doesn’t publish a detailed breakdown of the eligibility requirements, but there are a few essential boxes you need to tick to qualify:
- Be a Shopify merchant with an active store
- Have Shopify Payments or a third-party payment provider enabled on your store
- Your store must be located in one of the participating US states:
- Arizona
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Louisiana
- Maine
- North Carolina
- South Carolina
- Utah
- Washington
- Wisconsin
- Wyoming
Shopify Capital’s underwriters will also assess your risk profile and sales figures to make a pre-approval decision. Once you have been prequalified, you will receive a message in your Shopify; admin dashboard along with email notification.
Shopify seller loans are offered at specific amounts as determined along with the merchant’s eligibility. The invitation you receive will contain three offers to choose from and is valid for 30 days.
Since being a Shopify seller involves a certain degree of transparency related to your business, you won’t have to go through lengthy processes to build your case or put up collateral. When you’re ready to apply for a loan, you simply click the “apply now” button and accept the terms to formalize your request.
Approvals typically take 2-5 business days. Once approved, you will receive the loan in a single lump sum deposited into your bank account in as little as one day. The loan will be repaid with automatic deductions every 60 days, beginning two days after receiving your loan.
Pros and Cons
As with anything, there are pros and cons to Shopify seller loans. If you’ve been invited to apply for a loan, it’s vital to assess whether the option is the right one for you and your business.
Pros of Shopify; Seller Loans
Easy Application: To start, the overall process of obtaining a Shopify seller loan is easy. You don’t need to read through loan offerings, check mountains of fine print, and come prepared with a mountain of paperwork and even collateral to support your request. Instead, Shopify will send an invitation to apply only after they’ve confirmed you meet their eligibility requirements. The application process is painless, as Shopify already has your information and sales history.
Easy Repayment: That’s not where the easy aspect begins and ends, of course. Repaying a Shopify seller loan is also easy because your loan is attached to your seller account. Repayment comes via automatic deductions from your account every sixty days. That means you never have to worry about missing a payment.
Your Bad Credit Won’t Disqualify You: Shopify has a lower barrier to entry than traditional banking institutions. Even those with bad credit can qualify for Shopify seller loans as you already have a relationship with the company.
Convenience: If your online store is already running on the Shopify platform, it’s convenient to borrow money from them as well. You’ll consolidate your lending and repayment of the loan to a single place, which can take a lot of burden off small business owners.
Related: The Basics of Funding for eCommerce Businesses
Cons of Shopify Seller Loans
It Can Be Expensive: The repayment plans and interest rates on Shopify seller loans can be more costly than other options.
It’s Confusing: Some elements of Shopify seller loans are unclear and confusing. The remittance rate is variable, and it can be challenging to understand just how much you’re borrowing and how much you’ll owe.
It’s a Portion of Your Income: This point goes in the “pro” column as well, of course. It’s convenient and easy to simply take an amount from your income before it hits your bank account and repay the loan. It can, however, feel burdensome if your margins are tight. Coupled with remittance rates on the higher end, this could affect your business. Shopify also doesn’t cut you a break for early repayment - you’ll need to repay the entire amount, including interest, whether you do it early or across 12 months.
How to Use eCommerce Funding to Grow Your Business
eCommerce businesses often find themselves in a bit of a catch-22: how do you remain cautious with your use of cash flow without being so careful that you damage your relevance in the market? And how do you ensure you have available inventory when sales pick up if you haven’t had income during a low period?
A recent report notes that 82% of small businesses fail due to poor cash flow management. No matter how good your idea is or how well-made your product is, your business won’t survive if you can’t manage your cash flow and direct it to the right places.
The reality for small businesses is that there will be many times you’ll need some help. Cash flow ebbs and flows with sales cycles, and most business owners find that there are more expenses involved in running a business than anticipated.
There are two key areas you can invest cash flow to help generate new business: Marketing and Inventory.
Marketing and Advertising
The lifeblood of an eCommerce business, marketing and advertising are crucial elements that should not be overlooked. More than two billion people made online purchases in 2020, with eCommerce retail sales surpassing 4.2trillion dollars in the same year. Suffice it to say, there are more than enough customers available to you - but how are you reaching them?
Without marketing and advertising, you’re leaving it up to fate. As a Shopify merchant, you’ve taken a big (and wise) first step. The platform is used to power nearly one-third of eCommerce sites in the US alone. Shopify received more than 58 million visits to its more than 3 million stores in 2020, amounting to more than $5 billion in sales.
These stats make two things abundantly clear: there is a huge amount of possibility, but it comes with a lot of competition scrambling for a piece of the pie.
Receiving a boost with Shopify seller loans means you can invest in marketing and advertising to drive more visitors to your site. Specialist agencies can help with things like SEO, PPC, social posting and advertisements, and more if these things are not your in-house forte. The online world is saturated and highly competitive, and outreach is one major key to success.
Inventory
The competitive nature of the eCommerce market has led to fickle customers, unfortunately. Customer loyalty can be nurtured over time, but when attracting new customers or building a new relationship with shoppers, inventory can make or break your business.
Effective inventory control depends on more than ordering, receiving, shipping, repeating. Merchants should pay attention to their sales cycles and forecast well to optimize their cash flow. Holding excess inventory in anticipation of sales can get costly, but having zero stock on hand can be detrimental.
A boost to cash flow can make all the difference to inventory management, particularly at low points in your sales cycle. While you may wish to conserve funds when you have less money coming in, you also need to stock up and be prepared when sales pick up again. Inventory is a worthwhile investment, particularly in conjunction with marketing outreach. If you’re going to attract new customers, you’d better be sure you can fulfill their orders.
A More Flexible Alternative
For all of the positives of Shopify seller loans, they aren’t for everyone. Many merchants may find the repayment scheme too burdensome. If they’re even invited to apply in the first place, that is.
Rather than waiting around for Shopify to send you an invitation, there are alternative options available to you.
Onramp offers funding options designed with eCommerce merchants in mind. Cash advances will give you the cash flow injection you need when you need it. The application process is swift, and approval and funding take only a matter of days. Repayment details are clear and to the point, with a small percentage coming out of your sales to repay your balance. We also bring years of eCommerce experience to the table and are happy to share our wealth of knowledge to help you strategically apply your funds.
