Shopify Wants to Launch Millions of Small Businesses And Thinks $200 Loans Is The Way – ForbeseCommerce
Shopify, the Canadian company that operates an eCommerce platform, is making it even easier for anybody to become an online merchant, announcing the launch of starter loans.
The service which is being offered through Shopify Capital, the unit that offers financing to its online sellers, enables new merchants to get an initial loan of $200 when they sign up to Shopify and link their bank account. The money can be used to build a brand, add inventory or to begin marketing. The idea is to empower even more people to use its platform to hawk their products or services.
“For the immigrant who is new in the country, the student in the college dorm and the mom who has been out of work for awhile the starter loan makes it a little bit easier,” said Kaz Nejatian, vice president and general manager of Shopify Financial Solutions. “That $200 can get you your first Instagram add or logo. We’re really leveling the playing field.” While $200 may not seem like a lot, Nejatian said Shopify has seen plenty of businesses that started with $200 and grew into multi-million dollar companies.
Borrowers of the starter loan aren’t required to put up a personal guarantees or go through a credit check to access the money. The loan is paid back every sixty days as a fixed percentage of sales. If the merchant doesn’t make any money Shopify doesn’t come looking. Interest a borrower pays is based on the eCommerce platform’s underwriting but the company said it expects the majority of borrowers to pay a rate that is in the “very” low teens. The range does depend on how quickly they set up stores and scale up.
“You don’t need to have a Shopify business or accept payments on Shopify,” said Nejatian. “It’s designed to be the most merchant friendly funding mechanism to start a business.”
As it stands, getting a loan for a startup can be tough. Even if you want to open up something small, banks require business plans, projections and a stellar credit score that precludes many entrepreneurs from getting loans. There are credit cards, but they typically have high interest rates and loans from family and friends can be limited and/or hard to come by. “Most entrepreneurs don’t have a five year plan and have terrible credit scores,” said Nejatian. “It limits the pool of enterprises starting businesses.” The starter loan aims to overcome that.
Its the latest product for Shopify Capital, which was launched in April 2016. Since then it has advanced more than $750 million in loans. Shopify doesn’t expect the initial loans by themselves to be a huge margin business for the company but it does hope the entrepreneurs will use the funds to launch the next million small businesses.
“Shopify is all about encouraging people to start businesses in 2020,” said Nejatian. “We lowered the barriers for small businesses, making it really easy to set up an online store, making it easy to ship and now we want merchants to start businesses as easily and quickly as possible.”