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Shopify Business Loan Review: July 2023

Shopify Business Loan Review: July 2023

Pros Explained

  • Quick funding: It’ll take one to three business days to receive a loan decision. If approved, you can expect to see the funds in your account in as few as two days.  
  • Flexible payments: You won’t make fixed monthly payments. Shopify will automatically debit the payments every day based on a percentage of your sales until it’s repaid, making it a good option for businesses with ebbs and flows in sales.
  • Doesn’t rely on personal credit: Shopify bases your loan offer on the sales data it can see within your Shopify account, so good businesses with bad credit are still eligible.

Cons Explained

  • Limited availability: Financing is available on an invite-only basis to Shopify merchants with at least 90 days of consistent sales history. There’s no way to apply if you don’t see an offer in your Shopify account. 
  • May be very expensive: Shopify charges a factor rate instead of an interest rate, which consumer advocates warn is often used to hide extremely high financing costs equivalent to double or triple-digit APRs.
  • Requires daily payments: Daily payments can throw a wrench in your accounting routines, and come with restrictions about making changes to your account until the loan is paid off. 
  • Restrictions on early merchant cash advance payoff: You can’t pay off a merchant cash advance early unless it’s at least 25% paid off—a big problem if you come across a windfall shortly after opening it.  
  • Lack of transparency: Shopify doesn’t provide any details about the cost of its loans. This can make it more likely you’ll be saddled with an obligation that’s harder for your business to repay. 

Consumer advocates warn that lenders offering loans with factor rates instead of normal interest rates make it harder for business owners to understand the true (and often higher) cost of these loans. 

Types of Business Loans Offered by Shopify

Shopify offers two types of business financing products through its Shopify Capital division: business loans and merchant cash advances. 

Functionally, they’re essentially the same thing, although there may be some differences in the terms of the contracts (which Shopify won’t show you unless you apply for funding). Whether you’re offered a loan or a merchant cash advance depends on which state you live in. For our purposes here, we’ll refer to them both as “loans,” unless otherwise noted.

It’s important to note that Shopify business loans don’t work like most others. You’ll get a lump sum of cash, but you won’t make monthly fixed payments. Instead, you’ll agree to a “factor rate” in lieu of an interest rate. 

You’ll make payments as a percentage of your daily sales, which Shopify will automatically deduct each day. Since the finance charge is fixed, you won’t save any money in paying it off early, like with a traditional business loan. Indeed, paying off the loan early only increases the equivalent APR of the loan. Shopify won’t even let you pay it off early, anyway, unless you’ve already paid off 25% of your remaining balance. 

You can use a Shopify business loan for anything business-related. According to Shopify, most business owners use these types of loans to cover short-term funding gaps, such as:

  • Buying expensive supplies to manufacture a customer order 
  • Covering payroll or other fixed business expenses during seasonal lulls
  • Purchasing moderately priced equipment or other storefront upgrades

One 2019 Federal Reserve study showed that 85% of applicants were approved for these types of cash advance loans, but that the high interest rates and unfavorable loan terms made it much more difficult to run their businesses. 

Time to Receive Funds

If you’re eligible for a Shopify business loan, you’ll see how much you’re potentially approved for right within your Shopify account. According to the company, the application is relatively straightforward and only takes a few minutes, after which you’ll receive a decision in one to three business days. If you’re approved for a loan, you’ll see it in your business bank account in about two days. 

Borrower Requirements

Instead of basing your loan decision on a thorough review of your credit and financial details, Shopify looks at your sales history instead—which it can see right within your account, since it’s the service helping you to make those sales. Specifically, Shopify is checking that you’ve shown consistent sales over the past 90 days. 

If you don’t currently use Shopify, it might be best to look elsewhere unless you’re interested in migrating your business over to the platform anyway. You won’t be eligible for financing for at least 90 days, however, and that’s only if Shopify decides to extend you an invite. If you really need financing, don’t rely on Shopify to come through unless you already see an offer in your existing Shopify account. 

Shopify Business Loan Features

  • Simultaneous loans: Shopify may allow you to borrow another loan before you’ve paid off your first loan, and it allows you to defer payments on the second loan until after your first loan is fully repaid.

Can You Refinance a Business Loan With Shopify?

Shopify doesn’t disclose whether you can refinance one of its business loans with another Shopify business loan, but with a lower rate. You may be able to apply for a second business loan before your first one is fully repaid, however. 

Customer Service

Shopify offers live 24/7 customer support within your account, available over the phone, by email, or live chat. You can find an option to chat with a live customer representative buried in some of its support pages, but otherwise, support from the company is limited to current customers.   

Customer Satisfaction

It’s difficult to gauge how happy customers are with Shopify business loans. Review websites are muddied up with reviews of Shopify’s larger small-business software options and customers trying to purchase from businesses that use Shopify. 

However, one Federal Reserve study showed that overall customer satisfaction with alternative financing products from online lenders similar to Shopify was extremely low, with only 33% of small business owners being satisfied with their loan (versus 73% of small business owners who instead opted for a traditional business loan from a small bank). 

Applying for a Shopify Business Loan

One of the main selling points of a Shopify business loan is the ease with which you can get it, if it’s available for you. Here’s how to apply for it:

  1. Check your Shopify account for an offer: Go to the “Capital” section within the “Settings” area in your online account. If you’re pre-approved for a loan, you’ll see a few offers in the “View funding offers” section of your account. If you don’t see anything, you’re not eligible to apply. 
  2. Complete the application: Shopify will ask for a few details to verify your business details and your identity. This only takes a few minutes. 
  3. Review the loan agreement: Before you submit the application you’ll get a chance to view the loan agreement. Don’t skip this step because it’s your last chance to make sure you’re not signing up for any harmful terms, like a “Confession of Judgement” which waives your right to sue Shopify if it violates your rights as a consumer.
  4. Wait for a loan decision: It’ll take Shopify one to three business days to review your application package and issue a loan decision. 
  5. Receive funds: If you’re approved, Shopify will deposit the loan funds in your bank account. You’ll then have a two-day grace period before your daily payments begin.

Alternative Business Loan Lenders

Bank of America OnDeck Kapitus
Line of Credit Amount From $10,000 Up to $250,000 Up to $250,000
Loan Terms Not disclosed Up to 24 months 3-18 months
Recommended Minimum Credit Score 670 625 650

Final Verdict

Shopify makes it quick and easy for existing small business owners to apply for funding. But that effortless funding can turn into big problems later if you’re not fully informed about how these types of alternative financing products work, especially if you don’t shop around for other options first. 

Our recommendation: if you need funding, consider other loan types and lenders first. If Shopify is still the best deal, then great—take it, as long as you understand how the loan works and are confident you can repay it. But don’t use it as a first-line option if your business needs funding, even if it is quick and easy to apply for. 

Who Qualifies for Shopify Capital?

Shopify Capital is available to business owners who already use Shopify to run their ecommerce business, and who have at least 90 days’ worth of consistent sales history. 

How Do You Repay Shopify Capital?

You’ll repay a Shopify business loan with daily payments that scale according to a set percentage of your sales, known as the “remittance rate.” For example, a 10% remittance rate means Shopify will deduct 10% of your sales each day until the loan is repaid. 

Can You Get a Second Loan Through Shopify Capital?

Yes, Shopify may offer you a second loan before you repay your first loan. If this is an option for you, Shopify won’t begin deducting daily payments on your second loan until your first loan is paid off, although you’ll receive the second loan disbursement on schedule. 

Can You Get Shopify Capital With Bad Credit?

It’s possible. Shopify won’t check your personal credit when you apply for a business loan. Rather, it’ll look at your sales volume over time to determine if you’re eligible for a loan. If you have a consistent pattern of sales for at least 90 days in your Shopify account, you may qualify for a business loan even if you have bad credit.