Shopify Loans: financing and alternative options for Shopify store owners

If you’re one of the 21% of UK online businesses that use Shopify to sell online, you might well have found yourself in need of financing, whether it’s to grow your business, stock up inventory or manage cash flow. One of the most obvious options would be Shopify loans. These are provided through Shopify Capital and are financial products specifically designed for businesses using the Shopify platform. 

These loans help Shopify merchants access quick funding to support business growth, such as purchasing inventory, covering marketing expenses, or expanding their product lines.

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What type of loans does Shopify offer?

Shopify offers two primary types of funding: Shopify Capital Loans and Merchant Cash Advances (MCAs)​​.

• Shopify Capital Loans (available only in the US): These are traditional loans where a lump sum is provided, which is then repaid through a fixed borrowing cost that combines the loan amount with the total owed. Repayments are made as a percentage of daily sales, offering flexibility based on the business's performance.
• Merchant Cash Advances (available in the UK and US): This option provides merchants with a lump sum in exchange for a fixed fee. Repayments are also made as a percentage of daily sales, allowing businesses to pay more when sales are high and less during slower periods​.

Eligibility and application process

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 the store’s sales performance, the duration of using Shopify (at least three months), and adherence to 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 criteria that will improve your chances. These include: 

• Activity status: Your store must be actively subscribed to a Shopify plan and operational for at least three months or must 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 active use and engagement with Shopify’s platform are used to assess your business's health and growth potential.
• Failed debits: Your payment history, including failed debits for Shopify services and your record of repaying funds or remittances, can affect your eligibility.
• 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 your eligibility.
• Returns, chargebacks, and disputes: Excess chargebacks, disputes, and the frequency of returns within specific periods can lower your chances.
• Sales performance: The primary basis for eligibility and the size of the offer is your sales performance on Shopify, 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, so that’s GBP in the UK.
• Payment history with Shopify: Shopify looks for a history of timely payments for their services, including Shopify Credit and other financial offerings.

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

Key features of Shopify loans

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: Repayments are made automatically as a percentage of daily sales, which provides a cushion during slower sales periods.
3. No hard credit checks: Shopify Capital does not 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 operates without hidden fees, interest, or equity stakes in the business, making the cost structure simple and predictable for merchants​.

Limitations of Shopify loans

While Shopify loans offer many advantages, they also come with certain drawbacks:

• 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 loans 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 the merchant's sales volume and risk profile. Merchants with lower sales volumes or higher risk profiles may face higher costs.

Alternative funding options for shopify merchants

If Shopify loans aren’t suitable or accessible, there are several alternative funding options available for Shopify store owners:

1. Merchant cash advances (MCAs): Similar to Shopify’s MCAs, other lenders offer merchant cash advances based on a business's overall card sales, not just those made through Shopify. This can allow for higher borrowing amounts and more flexibility in repayment options​.
2. Unsecured business loans: Unsecured business loans are short to medium-term loans that do not require collateral. They offer lump sum funding with fixed monthly repayments. Unsecured loans are typically quicker to apply for but can come with higher interest rates compared to secured options.
3. Secured business loans: These loans require collateral such as property or inventory, which can provide 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​.
4. Invoice financing: For businesses with significant B2B sales, invoice financing can unlock cash tied up in unpaid invoices. Invoice finance provides immediate funds up to 95% of the invoice value.
5. Asset finance: Asset finance allows businesses to borrow against their assets, such as equipment or vehicles. It’s a good option for Shopify manufacturers looking to expand production capabilities without needing additional collateral​.

Choosing the right funding for your Shopify store

Shopify loans are an efficient and simple 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. 

For UK-based Shopify sellers looking for a flexible and digital-friendly financing option, iwoca’s Flexi-Loans have helped over 90,000 businesses succeed and grow.

• Quick access to capital: iwoca provides funding decisions within hours, with funds available as soon as the next business day. 
• Flexible repayment: iwoca’s repayment plans are tailored to your business's cash flow. Borrow from 1 day to 60 months with the option to repay early without penalties.
• Broader criteria: Unlike Shopify loans, iwoca considers your business's overall performance, including sales across different platforms and physical locations. This can result in 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 provides funding that adapts to your needs, helping you invest in marketing, inventory, or technology upgrades.
• Transparent costs: iwoca offers clear and straightforward pricing with no hidden costs, making it easy for you to understand the total cost of borrowing.

To explore how iwoca can support your Shopify business, check out our small business loans calculator to see how much you could borrow.