Does Square Offer Loans? Here’s How They Work

Square, a financial technology company, offers financing to eligible businesses through its Square Capital program. This service is designed for sellers who utilize Square’s point-of-sale systems. It provides accessible capital for operational needs and growth, especially for small businesses facing traditional lending challenges.

Nature of Square Capital Financing

Square Capital financing represents a unique form of business funding, often resembling a merchant cash advance rather than a conventional bank loan. Instead of charging an interest rate, Square Capital applies a fixed fee to the borrowed amount, which is clearly disclosed upfront. This structure ensures transparency, as the total cost of the funding remains constant regardless of the repayment timeline. Loans can range from $100 to $350,000, depending on the business’s performance and Square’s assessment.

The core characteristic of Square Capital is its offer-based system; businesses do not apply for these funds in the traditional sense. Square proactively extends offers to eligible sellers based on their transaction history and overall engagement with the Square platform. This financing is primarily intended for operational funding, such as managing cash flow, purchasing inventory, or covering unexpected expenses, rather than large-scale investments. The fixed fee is determined by a factor rate, which typically ranges from 1.10 to 1.16, meaning the fee can be between 10% and 16% of the borrowed amount.

Unlike traditional loans that often require personal guarantees or collateral, Square Capital generally does not. This absence of collateral requirements can be beneficial for small businesses that may not have significant assets to pledge. The streamlined nature of this financing, leveraging existing sales data, allows for a quicker assessment process compared to conventional loan applications. Funds are typically disbursed rapidly, often within one to three business days of acceptance.

Qualifying for Square Capital Offers

Eligibility for a Square Capital offer is primarily determined by a business’s activity and history with Square’s payment processing system. Square’s proprietary algorithms continuously analyze transaction data to identify potential candidates for financing. Businesses generally need to process a minimum of $10,000 in annual sales through Square to be considered. This processing volume typically refers to credit and debit card transactions made through the Square platform.

Beyond sales volume, Square assesses several other factors to determine eligibility and the size of the loan offer. Consistent sales activity and frequent payment processing are important indicators of a business’s stability and ability to manage repayments. Square also looks for a healthy mix of new and returning customers, along with evidence of business growth. A positive account history with minimal chargebacks or disputes further improves the likelihood of receiving an offer.

There is no formal application process for Square Capital; eligible businesses receive an invitation directly within their Square Dashboard and via email. Square does not typically require a minimum credit score or conduct traditional credit checks, focusing instead on the business’s performance within its ecosystem. This approach makes Square Capital an accessible option for businesses that might not qualify for financing elsewhere due to credit history limitations.

Managing Square Capital Repayments

Once a Square Capital offer is accepted and funds are disbursed, the repayment process is largely automated and tied to the business’s daily sales. Repayments are made through a fixed percentage of daily credit and debit card sales processed through Square. This percentage, often referred to as a holdback rate, typically ranges between 8% and 15%. This dynamic repayment structure means that on days with higher sales, more is repaid, while on slower days, less is deducted, aligning with the business’s fluctuating cash flow.

The automatic deduction continues until the total amount owed, which includes the original principal and the fixed fee, is fully repaid. While there is no strict repayment term, Square expects loans to be repaid within a maximum of 18 months. There is also a minimum repayment requirement, typically stipulating that at least 1/18th of the initial loan balance must be repaid every 60 days. If daily sales deductions do not meet this minimum, Square may debit the remaining amount from the business’s linked bank account or Square balance.

Businesses can monitor their repayment progress directly through their Square Dashboard, providing real-time visibility into the outstanding balance. Square Capital does not charge prepayment penalties, allowing businesses to pay off their balance early if they choose, although this does not reduce the fixed fee. If a business has multiple Square accounts, it may need to link them to ensure all sales contribute to repayment.