Running a business is expensive.
Even if you have the initial cash that you need to establish your company, you might need to tap into some extra capital as your venture grows, so that you can afford to take advantage of new opportunities.
So, where can business owners go to get their hands on that additional cash?
For most small businesses, the only option will be a business loan. If you've ever tried to apply for small business loans before, you'll know just how tough that can be. Banks and credit unions don't always trust businesses, particularly when a startup is small or new.
Fortunately, if you already have a history using Square, one of the most popular POS systems on the market, then you could consider turning to this company for support instead.
Square recently made its way into the world of business loans with “Square Capital.”
With Square Capital, companies can access the business financing solutions that they need to help their venture grow, without having to worry about huge interest rates or fees.
Read through our Square Capital review to find out more.
What is Square Capital?
Square is one of the world's most popular mobile POS providers for today's business owners.
The company launched with a mission of giving companies and service providers the easy-to-access transaction systems that they needed to run pop-up shops, retail locations, and restaurants around the world. With square, you can get the daily payments you rely on from your customers without having to worry about overly complicated technology and tools.
Square was one of the first companies to roll out a wide range of mobile-friendly payment solutions for modern vendors, including an EMV compliant chip reader for credit and debit cards.
Square also gives users access to things like their own mobile wallet, digital inventory management, and more. As a pioneer in their field, it's no surprise that Square decided to expand their adventures in payment systems even further, by entering the world of business loans and business financing.
So, what on earth can you expect from a Square Capital loan, and how beneficial are these financing options for business owners?
In 2014, Square began experimenting with financing options in the form of merchant cash advances – a type of non-loan financing option where Square collected the payments owed by deducting a percentage of each of your sales.
The mobile POS recently converted their Square Capital product to a “loan” service. However, in practice, the fees and payment strategy are precisely the same as they were before. Ultimately, you're still getting a merchant cash advance; it just comes with the “loan” title.
Square Capital's rates and fees are all customized according to your daily card sales over the Square POS system (read our Square POS review). This means that you need to be a merchant with Square to access their working capital offering. Additionally, all loans need to be paid within a maximum of 18 months.
Square Capital Review: Eligibility
One of the most important things you need to consider when choosing any “working capital” option for your business loan, is what kind of eligibility requirements the company has in place.
As mentioned above, the most critical restriction for Square Capital is that it's only available to merchants that use Square POS. You might be able to sneak your way into the system if you're using a POS that has a partnership with the Square brand too.
Because Square already has a payment processor to offer merchants, it's in an excellent position to collect and process information on your business finances. If you're already signed up with Square, that also means that you don't have to worry about a complicated repayment process or lengthy loan application.
Square Capital takes a unique approach to small business loans by not allowing users to apply for their own cash. Instead, the company will extend an offer to you if you're active on the Square merchant services platform, and you're earning enough money.
If Square's algorithm likes what it sees when it's looking at your cash flow and typical card sales, then it will add an offer for a loan to your Square dashboard. If you don't have an offer on your dashboard, you can't get a loan – it's as simple as that. This reduces the amount of rejections that Square has to give out to companies that aren't eligible for the Square capital loan.
On the other hand, if you do get the offer and you choose to accept, then the funds will be sent directly to your account – often within a matter of hours. Currently, there's very little information available about how Square determines a merchant's eligibility for Square Capital.
👉 However, we can assume that the company looks at things like:
- Your overall activity level on the Square POS
- Your processing volume (products and services)
- How often you use Square
- Your ratio of returning and new customers
- The growth of your company
- The number of chargebacks you deal with
Interestingly, Square Capital doesn't appear to examine your bank statements or credit scores when it comes to offering you a business loan. Like most financing solutions that provide merchant cash advance options, your general success as a business owner, and the amount of card sales you make will be far more important to Square than your credit earning
This means that as long as you're earning a relatively consistent income from your clients with the Square POS, you shouldn't have a problem receiving money – even if you don't have the best credit. For many companies, Square's application process will be a much more appealing alternative to the standard short term loan.
Square Capital Review: Funding Process
Okay, so Square likes what it sees on your merchant account and places a loan offer on your dashboard.
Then, what happens next?
Well, you should have an insight into how much Square deems you eligible to borrow in the form of your offer. You don't have to accept that full amount if you don't want to. Instead, you can look at various options up to your limit, and see what the fees, rates, and repayment terms look like for each corresponding loan. Small business loans come in many different shapes and sizes; the lump sum that you need from your provider will depend on what you want to accomplish with your capital.
If you like what you see when you browse through your capital options, then you'll be able to click “accept” on your loan offer. At this stage, Square might ask you for a few documents to prove your identity and show that you own your business.
The process is pretty straightforward:
Once you've submitted your application, the Square Capital team will approve your request within 3 days and deposit your funds into your bank account. This means that you won't necessarily get a lump sum into your business bank account the next business day. However, compared to a lot of other short-term loan providers, Square is pretty quick at giving you the money you need.
One problem? If you reject a loan that's extended to you and you decide that you want to take out the capital with Square later, you don't have a lot of options. There's no way to determine whether you're going to receive another offer, and you can't exactly rely on getting funding with Square when you need it most. Square isn't like other business lenders where you can just go and make an application for a loan whenever you like. You need to wait for Square to come to you.
Additionally, even after you've been approved for a loan and you've got the offer sent to your page, there's always a chance that you could be rejected when you “accept” the loan. This can happen if Square sees any unusual behavior on your account, like a change in the number of customers you get, for instance. If Square is concerned that your annual revenue isn't going to meet its initial projections, then it might not give you a business line of credit, even after making an offer originally.
Square Capital Review: Terms and Fees
As mentioned above, Square Capital is a little unpredictable when it comes to things like terms and fees, because your loan is based on your merchant account and your annual revenue.
However, if you're lending between $500 and $250,000 from Square, you can expect to be asked to pay your money back within 18 months, and there won't be any origination fees to worry about. When it comes to loan options, Square is pretty flexible, and the information required for your application is relatively limited.
Crucially, Square also doesn't use “interest rates” in the conventional sense.
Instead, Square makes money from its business loans by asking you to pay a one-time fee called a “factor rate,” which you pay back gradually over the life of your loan. You won't be able to save some extra cash by paying your loan off early this way – but that's not too much of a problem for some companies. For short-term loans, the factor rate option is an excellent way to manage your lending.
According to research by the Wall Street Journal, the “factor rates” which Square offers are usually between 1.10 and 1.16 depending on your merchant background and your loan amount. This means that you'll be paying up to $1.16 back for every dollar you borrow. It's best to check on your repayment amount before you commit to your loan with Square, just in case. You don't want to end up with a business line of credit that's going to cost you more than you think.
Additionally, you will have the option of making additional payments and getting rid of your loan at any time. This takes the credit off your mind, but it doesn't deliver any other major benefits. You also don't need to offer any collateral for a loan of up to $75,000 with Square Capital – but you will be required to use a blanket lien if you're borrowing more than that.
Although there's no specific “term” on the loans that you get with Square Capital, you will have to pay the full amount within 18 months. In general, Square will set up your payment rate so that you should have all of the money paid back within a year, but you can adjust your repayments if necessary.
Some companies will love Square Capital‘s funding and repayment model. It means that you don't have to worry as much about interest, because there's just one blanket fee. Additionally, you're not going to have to keep track of your repayments, because Square will automatically take them from the sales you make. Square takes an alternative route to the rules and restrictions of traditional loans, giving businesses the power to access cash for company growth without worrying too much about their repayment amount, or personal credit score.
Another significant benefit of Square Capital‘s repayment plan is the fact that it adjusts your payments according to your incoming cash each month. If you have a slow month and you don't earn a lot, Square will adjust your payments based on a percentage-based plan and move some of the cash you owe over to another higher-paying month.
You can even set up prepayment strategy according to your business needs, so you can pay off the debt on your Square account at a time and pace that suits you. As flexible lending goes, Square point of sale is one of the best options for those short term loans that you may need as your company grows.
Square Capital Review: Flexibility
If you're concerned that you don't know enough about Square Capital to jump straight into a new loan with the company, you can check out the Square Capital Support Center to find out more. However, there's not a lot of documentation available on the Square website to get you started. If you don't know much about things like factor rates and merchant cash advance strategies already, then you might feel a bit confused. The information on Square's website is so limited that you may need to track down assistance on forums and social media pages instead.
The mystery surrounding Square capital is very unusual, as most of the things you find on your Square account are very easy to access and understand. Everything from managing credit card sales to accessing your cash the next business day is pretty straightforward with Square, but it's very clear that the company is just getting started with merchant cash advances.
There's a big difference between Square's approach to funding and the kind of guidance you would get if you went with a brand that has more background in the field, like Kabbage, or Celtic bank. However, not every provider with more heritage will give you the same options when it comes to prepayments, and the ability to overlook your personal credit score for your new loan.
One thing worth noting is that you will need to use your money for business purposes – but Square doesn't put too many restrictions on how you manage your finances. You can apply for a loan for all purposes after the capital has been offered.
👉 Some of the ways Square recommends using your credit include:
- Managing payroll
- Investing in new technology
- Leading cars and equipment
- Hiring new employees
- Dealing with business debt
- Purchasing new equipment
- Expanding your product or service portfolio
However, you decide to use your loan, Square will assess your background and set up a repayment strategy that's suitable for you based on your monthly income. It's a very flexible and straightforward process – even if the actual act of being approved for a Square Capital loan isn't as simple as it could be. When you borrow money from a company like Square that deliberately takes an alternative approach to that of traditional business lenders, there's sure to be a few hiccups along the way.
If you need help managing any aspect of your Square Loan, you can visit the “Capital” tab on your Square POS dashboard. From there, you can check how much you still owe, and make repayments if you want to get out of debt faster.
Square Capital Review: Customer Service
Customer support is a crucial thing to consider whenever you're working with business lenders in any environment. However, it's particularly important to make sure that you have a customer support team you can trust when you're borrowing money for a business loan.
Over the years, Square's customer service strategy has faced some controversy. Companies haven't always felt confident that Square can serve their business needs. The company has struggled to delight customers with an often slow and complicated process when it comes to applying for help. Fortunately, the Square team has drastically updated customer support in recent years. Now, there are a few ways to get in touch with Square, including Facebook messages, phone, email, Twitter, and more. There's also a community forum where you can get support from other Square sellers and representatives.
Thanks to its excellent upgrades in customer service, and the fact that the Square Capital offers such a simple and flexible source of financing for businesses of all sizes, Square has begun to gather a lot of positive testimonials from customers in recent years. You can find plenty of happy reviews from customers who have used the Square Capital solution.
👉 According to some of the reviews that we've read, the biggest benefits of this option include:
- Inexpensive fees for funding
- Hands-off automated repayment method makes managing debt easy
- Fast access to money (although not always when they need it most)
- Convenient lending process and easy application
The best option to make sure that you feel comfortable using Square's strategy for business loans is to test out the rest of the Square point of sale experience before you get started. Getting a feel for how the rest of the Square experience performs can make you feel more confident when the time comes to start thinking about things like factor rates and cash advances.
Square Capital Pros and Cons
- No need to worry about credit scores
- Short loan application process
- Fees and rates are quite low
- No unnecessary additional fees
- Convenient repayment process
- Can pay back early if you choose to
- You have to wait around for an offer
- Square Capital is only available to Square sellers
- No way to save money by paying back early
- Next business day cash delivery isn't always available
Square Capital FAQ
Do you still have questions about Square Capital?
The following information may help:
Q: What kind of business loans can Square Capital offer?
A: Square's loans are unsecured up to $75,000. They're a form of merchant cash advance, where Square takes what you owe out of your transactions.
Q: Does Square charge early repayment fees?
A: No, you can pay the loan off early if you want to – although this won't save you any money on interest like it would with a traditional loan.
Q: How much can you borrow with Square Capital?
A: Loan amounts for Square Capital start at around $1,000 and go up to $100,000. The amount you can borrow will depend on how much you earn from regular and new customers each month.
Q: What's the maximum loan term with Square?
A: If you get a loan with Square Capital, you can borrow the money for between 3 and 18 months. The option for a longer-term means that you can handle larger amounts of cash easily and repay them gradually over time.
Q: How do you qualify for Square Capital?
A: Square Capital is available to both new and veteran businesses. You need an account with the Square POS merchant system, and you need a credit score of at least 350. You'll also have to be a permanent resident of the US to apply for a loan. When Square offers your capital, you'll need to provide proof of income, a driver's license, or proof of citizenship or residence document.
Q: How long does it take to get Square Capital?
A: To access funding from Square Capital, you'll have to wait for the company to come to you. However, if you accept a loan offer, you can get a decision within an hour, and the loan can be delivered to your bank account within a day. However, it may take up to 3 business days to get the money you need into your account.
Q: How much are the monthly repayments?
The monthly payments required for small business owners using Square capital will depend on a number of things. As you know, Square assesses your eligibility for a loan based on your credit card sales and yearly income. The more you can lend due to a high number of credit card sales, the higher your repayments will be. Additionally, each new loan comes with a factor rate to consider that Square will calculate and suggest for you when offering your loan.
Q: Are there alternatives to Square Capital?
If you decide that you don't want to get your new loan with Square, then there are a lot of other business lenders out there to consider, including PayPal Credit, Kabbage, traditional lenders like the Celtic bank and many more. Don’t' be afraid to check out all of your options before you commit to something from Square.
Square Capital Review: Verdict
If you're lucky enough to be eligible for financing from Square Capital, then this solution is a simple, convenient, and relatively affordable source of funding for businesses of all sizes. If you're a small business that hasn't build up a great credit rating yet, but you have plenty of customers, Square Capital may be ideal for you. It's more likely that you'll get the new loan that you need this way, rather than having to deal with banks and credit unions.
One of the biggest benefits of Square Capital is how convenient it is. The lending process is almost entirely automated, and you don't need to remember to make your repayments each month.
Of course, Square Capital has a few problems to consider. For instance, the biggest issue is that there's no option to fill out an application when you're most in need of funding. You need to wait around and see whether Square comes to you and offers a loan. If you're dealing with a situation where you need money fast – that's not going to work.
Additionally, Square's not as straight forward as other options like Kabbage or the Celtic bank when it comes to getting next business day loans. It might take a little time for you to get used to how Square offers new loans to its customers. For some companies, even PayPal Credit might be a better option.