Understanding the Hidden Costs of Shopify’s Financing Program

Operating a successful business is often determined by numerous factors. Some entities use e-commerce sites like Shopify to sell their products or services. Even so, the amount of capital needed to address specific expenditures can be a major concern for any business or company.

Fortunately, some entities like Shopify offer merchant loan opportunities geared toward alleviating these costs. That said, before entering into a Shopify capital loan, you should familiarize yourself with the important underlying factors associated with these agreements, as they can determine the actual costs involved with paying the loan back or your daily business functions.

Shopify Capital Loan Basics

If you run an e-commerce business through the Shopify platform, you might be entitled to a capital loan from the company. Shopify lends up to $5 million and offers two types of loan contracts: business loans and merchant cash advances. The specific offer made to you or your business will be determined by several factors.

Why Shopify Loans Are Favorable to Businesses

Shopify loans do offer certain favorable criteria, including:

Lenient Eligibility Mandates

Shopify does not require you to undergo a rigorous background check to determine your eligibility. For example, the company does not perform personal credit checks on subjects applying for capital loans. Moreover, they do not require you to put up collateral like money or personal property. Basically, the main requirement is that your business must have 90 days of consistent sales on the Shopify platform.

Quick Decisions and Fund Dispersal

It does not take much time for the company to review your loan. Typically, decisions will be made within one to three business days. Additionally, upon approval, you usually receive your money within only another few days. In most cases, these funds are sent directly to your company’s business account at the specific bank or financial institution managing it.

Possible Underlying Factors Determining Eligibility or Future Costs

There are, however, a number of important tenets that you must understand before agreeing to a capital loan contract with Shopify, such as:

Loan Invitations Are at the Behest of the Company

Shopify adheres to a “don’t call us, we’ll call you” approach. This means that the entity only invites individuals or businesses to apply for capital loans that they have reviewed through a pre-screening process. If you do not receive an invitation, you are not eligible for the loan. This factor plays a major role in rendering the application process quicker than when dealing with other financial institutions.

Payments Are Required on a Daily Basis

Usually, you remit loan payments on a monthly basis for a fixed dollar amount. This is not the case with a Shopify capital loan. The company recoups the money they lend you on a daily basis based on how much your company sells in a given 24-hour period. If you experience a day or period of slow sales, you will remit little or no funds. However, during fruitful periods, you will be required to pay a solid percentage of that day’s sales to cover your loan terms, which could prove challenging if your company has numerous other expenditures.

Final Thoughts

Shopify understands that running a business is challenging and expensive and that its merchants might experience periodic financial shortcomings. The company attempts to help alleviate these struggles through capital loans. However, these agreements are not for every business or company, and its sellers are strongly urged to consider all the pros and cons before entering into any loan contracts.

Generally speaking, Shopify capital loans are best for entities, establishments, or organizations that need money as soon as possible, like within a few days or weeks. Moreover, this form of financing benefits those with experience obtaining financing from institutions with stricter eligibility requirements.