What are They?
Provider of merchant cash advances to businesses that use Square to process credit card payments.
How popular are They?
As of April 2015, Square Capital has advanced over $100 Million to over 20,000 Square merchants.
Who will Qualify?ca
Square merchants with sufficient history and processing volume are invited to apply. Square has not released specifics, but we estimate that you can qualify by processing as little as $68/day in credit card sales.
Who are they right for?
Square merchants who want to borrow a small amount of money quickly and pay it back based on credit and debit card sales instead of a fixed maturity date.
None. Any Square merchant with sufficient history and processing volume is eligible.
Personal Guarantee required?
1 Business Day.
Where do they lend?
All 50 states.
How much do they lend?
$2,000 to $50,000. Most advances are between $4,000 to $10,000.
For how long?
As long as it takes to pay back. The average Square merchant takes about 10 months to pay back the advance.
Cost/Interest rate of funding invoices?
The effective APR for Square Capital is about 35 %.
How do payments work?
A fixed percentage is deducted from your daily credit card sales until you pay back the advance. When business is strong, you pay more. When things are slow, you pay less.
None. Square already has all the information it needs since eligible businesses must have a Square account to qualify for an advance.
Launched in May 2014, Square Capital is a simpler, cheaper alternative to traditional merchant cash advances. Typically, merchant cash advance providers screen out businesses based on credit score, time in business, and monthly sales. With Square Capital, select merchants are pre-approved based on their Square history and Square processing volume. Those merchants can request financing in just a few steps from their Square dashboard. Square then deposits the funds in as little as 1 business day.
Most merchant cash advances are outrageously expensive, but Square Capital is pretty affordable. While the APRs for merchant cash advances are usually in the triple digits, the APR for Square Capital is around 35 %. Granted, this is costlier than a bank loan and slightly higher than the APR charged by PayPal for a similar cash advance product for PayPal merchants. However, it’s cheaper than popular short-term providers like OnDeck and Kabbage. It’s also much faster than getting a bank loan or an SBA loan!
Square Capital does have a couple downsides. Based on our own estimates, it seems like you can qualify for Square Capital if you process as little as $68 per day in credit card sales. However, such merchants will qualify for only small amounts of capital (most qualify for less than $10K), so this works best for financing small purchases or when used in combination with other sources of capital. Square Capital is obviously open only to Square merchants. If you use another credit card processor, you must use another financing option.
- Personal Credit Score: Any
- Years in Business: Must have sufficient history as a Square merchant. Square hasn’t released specific details.
- Revenues: Must have sufficient processing volume on Square. Square hasn’t released specific details. Based on our own estimates, you can qualify for $2,000 of Square Capital if you process around $68/day on average in credit card sales.
- Industry Exclusions: None.
- Other Qualifications: Must use Square to process credit card payments.
Collateral Required? No.
Does the advance require a personal guarantee – From who? No. If you default on the advance, it looks like Square cannot come after your personal assets. However, we recommend looking carefully at the financing agreement, as you should with any loan.
Upfront Fees: None.
Servicing Fees: None.
Other Fees: Square is currently advertising a factor rate of 1.13 on its merchant cash advances. The factor rate tells you how much you owe Square. For example, if you take a $10,000 advance, you will have to pay Square $11,300 from future card sales.
Are interest rates variable? No.
How an Advance is Structured with Square Capital
There are three things that make up the cost of a Square Capital loan:
- Advance – This is the principal, the amount of money you borrow from Square.
- Fee/factor rate – The fee on a merchant cash advance is described as a factor rate. Square Capital currently charges a factor rate of approximately 1.13. Multiply your advance by the factor rate to get the total amount of money you have to repay. For example, you have to repay $11,300 if you borrow $10,000 through Square Capital. This amount doesn’t change regardless of how long it takes to pay back Square.
- Portion of Future Card Sales (aka retrieval rate) – You must turn over a fixed percentage of your daily credit card sales to Square to repay the loan. This percentage, also called a retrieval rate, typically ranges from 9 – 13 %. You will learn your percentage before you sign a financing agreement and receive funding (see sample offers here). Say you qualify for a $10,000 advance with an 11 % retrieval rate. If you make $300 in sales one day, Square will take $33 that day towards repaying your advance. If you have a bad day and make no sales, your payment resumes on the next day that you have sales.
APR of a Square Capital Advance
If you’ve purchased a home or a car, you may have heard of your interest rate quoted as an Annual Percentage Rate (APR). APR is the cost of a loan over one year.
Having the APR makes it easier to compare Square Capital with other merchant cash advances and other loan products. Fundastic has calculated the APR of a Square Capital advance to be around 35 %. This calculation is based on Square’s estimate that most merchants are able to pay off the advance within 10 months. If your credit card sales take a hit and you take longer than that to pay back the advance, your APR will actually decrease because you are paying the same amount back but are borrowing for a longer time. You’re not saving any money by paying back over a longer time, but there’s also no reward to paying back early.
An APR of 35 % makes Square Capital magnitudes cheaper than most other merchant cash advances. For example, RapidAdvance has APRs over 80 %. Square Capital is also cheaper than popular short-terms lenders OnDeck, Kabbage, CAN Capital. Square Capital is significantly costlier than a bank loan, but that’s to be expected given the speed at which funds are available through Square Capital. You pay more for the convenience and quick access to funds. If you’re a PayPal merchant, you may want to consider their loan product called PayPal Working Capital first as it is slightly cheaper than Square Capital.
With Square Capital, there’s actually no “application process” to speak of. Merchants that are invited to Square Capital are pre-approved for a certain range of funding based on their Square history and processing volume. They must simply go to their Square dashboard and act on the invitation by requesting a specific amount of funding. Square will then review the request and after final approval, deposit the funds in the merchant’s bank account as fast as the next business day.
What documents need to be provided? None. Since you already have a Square account, Square has all the data it needs about your Square history and processing volume.
Do they need online access to any systems – Quickbooks, PayPal, bank accounts? Not applicable. Square already has access to your Square history and to bank accounts linked to your Square account. They don’t need access to any other information.
Is there a credit report pull? If so at what point in the process? No.
Which credit reporting agency does Square use? None
Does Square report to the credit bureaus? No.
Advance Sizes and Terms
What is the minimum / maximum time I can borrow capital? You can take as long as you need to to pay back the advance, but most merchants pay back the advance within 10 months.
What is the minimum / maximum amount of available capital? Square extends between $2,000 to $50,000 in capital. Most merchants qualify for about $4,000 to $10,000 of funding.
Since we know the typical payback period (10 months), average factor rate (1.13), and average retrieval rate (11 %), we can estimate how much you might be able to borrow through Square Capital based on your daily credit card sales. Note that these are our own estimates based on the publicly available data, but Square hasn’t provided or confirmed these numbers:
Amount You Have
to Pay Back
Estimated Daily Sales You Need
to Make to Qualify
Payment Methods & Schedule
Schedule of Payments: A fixed portion of your daily credit card sales (typically between 9% and 13%) is automatically deducted before the remaining balance is deposited into your bank account. You will see a daily breakdown in your dashboard that looks something like this:
Payment Initiation: Square automatically takes its percentage at the end of each day before depositing the balance in your bank account.
Method Of Payment: Automatically deducted from daily credit card sales.
Penalties For Missing Payments: Not applicable. If you don’t make sales on a particular day, your payments resume on the next day that you make sales. PayPal has a lending product that’s similar to Square Capital but requires merchants to make certain minimum payments over time. Square doesn’t require minimum payments. When your business is doing well, you pay more; when business slows down, you pay less.
What happens on pre-payment? The amount of money you owe doesn’t change, regardless of how long it takes to repay Square.
US-based or International? US-based. Square is located in San Francisco, CA.
Support hours: Phone support for Square merchants is available from 6 am – 6 pm PST.
Other Lending Products
Square doesn’t have any other lending products.
Need some money for your business? Click here to get our FREE Guide:
How to Get a Small Business Loan.
The Bottom Line
Square Capital is much more palatable than a traditional merchant cash advances. It is much easier to qualify if you’re a Square merchant. It’s also several times cheaper than a traditional merchant cash advance.
At the same time, Square Capital is only right for businesses that need small amounts of capital. If your business needs more capital or if you use or would like to use a different credit card processor, then we recommend a different financing option.