Shopify Loans: financing and alternative options for Shopify store owners

If you’re one of over 200,000 UK online businesses that use Shopify to sell online, you may have found yourself in need of financing, whether it’s to grow your business, stock up on inventory or manage cash flow. One of the most obvious options is a Shopify loan, as these are financial products provided through Shopify Capital and designed specifically for businesses using the Shopify platform. 

In this article, we explore the loans offered directly through Shopify, including how they work, their features and benefits and alternative funding options to consider.

What type of loans does Shopify offer?

Shopify loans help merchants using the platform for their online store to access quick funding to support business growth, such as purchasing inventory, covering marketing expenses or expanding product lines. There are two primary types of business funding from Shopify Capital: term loans and merchant cash advances (MCAs)​​. Here’s a summary of how each option works:

• Shopify term loans*: A lump sum is provided, which is repaid over time through fixed periodic repayments, alongside a fixed borrowing cost (rather than a traditional interest rate).
• Shopify MCAs: Merchants are again a lump sum, but repayments are made as a percentage of daily sales, allowing businesses to pay more when sales are high and less during slower periods​. There is a fixed borrowing fee, but no fixed repayment date.

*Shopify’s term loans are currently only available in the US.

What is the eligibility and application process for Shopify loans?

Like Amazon loans, eligibility for Shopify loans is invitation-only, meaning Shopify merchants cannot apply unless they receive an offer directly from Shopify. Eligibility is typically based on your online store’s sales performance, the duration of using Shopify (at least three months), and how well you meet Shopify's terms and conditions​.

What are the conditions to be eligible for a Shopify loan?

While owners have to wait to be invited to use Shopify loans, there are certain eligibility criteria and conditions that will improve your chances of getting a loan or MCA from Shopify. These include: 

• Activity status: Your store must be actively subscribed to a Shopify plan and operational for at least three months or have made its first sale over three months ago.
• Customer engagement: The eligibility assessment includes evaluating customer interaction levels with your store, including both the number of customers and their engagement.
• Compliance with the Shopify TOS: Stores that may violate Shopify's Terms of Service or other Shopify Agreements, including Shopify Payments and Shopify Credit, are not eligible for Shopify Capital.
• Engagement with the Shopify platform: Your engagement with Shopify’s platform is used to assess your business health and growth potential.
• Failed debits: Your payment history, including failed debits for Shopify services and your record of repaying funds or remittances, affects eligibility for Shopify loans and advances.
• Payment providers and payout cadence: Eligibility requires using Shopify Payments or approved third-party payment providers. The frequency and timing of your payouts also influence eligibility.
• Prohibited products and services: Stores selling prohibited products, such as cannabis and drug paraphernalia, are ineligible, even if these products are legal in your jurisdiction.
• Reserves: Having a reserve on your account, which is a temporary hold on transactions processed through Shopify Payments, can impact eligibility.
• Returns, chargebacks, and disputes: Excess chargebacks, disputes and the frequency of returns within specific periods can lower your chances of approval for Shopify loans and capital borrowing.
• Sales performance: The primary basis for eligibility and the size of the offer is your Shopify sales performance, including sales volume, frequency, total orders, and successfully shipped orders.
• Shopify Exchange: Stores listed on or recently sold through Shopify Exchange are not eligible for Shopify Capital.
• Store currency requirements: Your store must be located in a relevant country, with the currency set to local currency.
• Payment history with Shopify: Shopify looks for a history of timely payments for their services, including Shopify Credit and other financial offerings, to support approval decisions.

Once eligible, the application process for business loans from Shopify is managed directly through the Shopify admin dashboard, making it easy to manage alongside other business operations. 

Pros and cons of using a Shopify loan

If you’re offered the chance to get capital from Shopify for your online business needs via the invite-only lending facility, it’s good to know what to expect, the benefits of the solutions and any potential drawbacks.

So, let’s take a look at the pros and cons of Shopify loans for merchants using the platform.

Key features and benefits of Shopify loans

So, we’ve learned about how Shopify Capital works and what can help you qualify for finance, but how can these solutions help your business? Here are the main features and benefits of Shopify loans and advances for online merchants:

1. Fast and flexible financing: One of the main advantages of Shopify loans for merchants on the platform is the speed at which funds can be accessed. Approval and funding can occur in as little as two business days, making it a convenient option for approved businesses needing immediate capital​.
2. Repayment flexibility: In the cases of MCAs, repayments are made automatically as a percentage of daily sales, providing a cushion during slower sales periods that helps cash flow management.
3. No hard credit checks: Shopify Capital doesn’t require a hard credit check, making it accessible for businesses that might struggle to qualify for traditional bank loans due to less-than-perfect credit scores.
4. Transparent costs: Shopify Capital offers clear borrowing fees upfront, meaning no hidden costs, interest or equity stakes in the business, making the cost structure simple and predictable for merchants​.

Limitations of Shopify loans

While Shopify Capital offers many advantages, the finance solutions also have a few drawbacks. Here are the main limitations of Shopify loans to be aware of:

• Limited availability: Since Shopify loans are invitation-only, not all Shopify merchants will have access, which can be a significant barrier for businesses needing immediate funding but not meeting Shopify’s criteria.
• Sales-based restrictions: Shopify MCAs are based solely on sales generated through the Shopify platform. This means that businesses with significant off-platform sales (e.g., brick-and-mortar or other e-commerce sites) might find their borrowing capacity limited, as these sales are not considered in the loan calculations​.
• Higher cost for lower sales: The terms of Shopify loans, including the amount that can be borrowed and the associated fees, are influenced by your sales volume and risk profile. Merchants with lower sales volumes or higher risk profiles may face higher costs, hindering smaller businesses.

What kinds of business loans are suitable for Shopify stores?

If you’re not able to access a Shopify loan, don’t worry. Various alternative funding options are available for online businesses, from revenue-based finance, invoice finance and asset finance to secured and unsecured loans.

Take a look at the alternatives to Shopify loans below, including our handy comparison table, which can help you judge their suitability for your business. 

Alternative funding options for Shopify merchants

1. Revenue-based finance from other providers: You can get merchant cash advances from various UK lenders if you’re seeking another revenue-based funding solution as an alternative to Shopify MCAs. These can be repaid based on your overall card sales, not just those made through Shopify, and can unlock higher borrowing amounts and greater flexibility.
2. Secured business loans: These loans require collateral such as property, equipment or inventory, which can offer access to higher loan amounts and lower interest rates. Secured business loans are better suited for businesses with substantial assets and can offer longer repayment terms​.
3. Unsecured business loans: An unsecured loan is a short to medium-term loan that doesn’t require collateral. They offer lump sum funding with fixed monthly repayments, plus interest. Unsecured loans are usually quicker and easier to apply for and offer greater flexibility than secured loans, but can come with higher interest rates due to increased lender risk.
4. Invoice financing: For businesses with significant B2B sales, invoice financing can unlock cash tied up in unpaid invoices. Invoice finance provides immediate funds of between around 80 to 95% of the invoice value, with providers releasing the remaining amount (minus service fees) once clients have paid the invoice.
5. Asset finance: There are various forms of asset finance, from hire purchase agreements to finance leasing, allowing businesses to hire or acquire key business assets and equipment without huge upfront costs, spreading costs over a long period, with flexible options for use and repayments.

Loan comparison for Shopify store owners

To help you work out which business loan or finance option for Shopify store owners is most suitable for you, we created a simple comparison table, showing how the options compare across key consideration factors. Take a look below:

Choosing the right funding for your Shopify store

A Shopify loan is an efficient way for eligible Shopify merchants to access finance, with simple applications and integrated payments through the Shopify platform. However, the detailed eligibility criteria and invite-only access mean that not all merchants will be able to use them. 

The aforementioned alternatives to Shopify Capital offer various pros and cons, which are suitable for different situations and financial needs. For UK-based Shopify sellers looking for a flexible and digital-friendly financing option, iwoca’s Flexi-Loan is a great option to consider.

We’ve helped over 150,000 businesses to manage cash flow effectively and reach their growth ambitions. Our loans are unsecured and quick and easy to access, supporting both short- and longer-term working capital needs.

Here are the main benefits of iwoca Flexi-Loans for online businesses:

• Quick access to capital – iwoca provides funding decisions within hours, with funds available as soon as the next business day. 
• Flexible repayment – repayment plans are tailored to your cash flow, and you can borrow £1,000 to £1 million from as little as a day to as long as 60 months, with the option to repay early without charge.
• Broader criteria – unlike Shopify loans, iwoca considers your overall performance, including sales across different platforms and physical locations, unlocking higher borrowing limits and better terms.
• Support for growth at all stages – whether you’re a start-up looking to establish your business or a growing store ready to scale, iwoca funding adapts to your needs, helping you invest in marketing, inventory or technology upgrades.
• Transparent costs – we offer clear and straightforward pricing with no hidden costs, making it easy to understand the total cost of borrowing.

To learn how iwoca can support your Shopify business, explore our flexible loan solutions and check out our small business loans calculator to see what your repayments might be.