Square Capital Review
- Fast application process
- Fast access to capital
- Automatic repayments
- No origination fee
- No prepayment penalty
- Great repayment interface
Square, the most popular and widely known mobile POS on the market, is an innovator in all things small-business and credit-card related. They’ve been the first, or close to the first, to roll out a mobile payments solution, an EMV compliant chip card reader, and, recently, a mobile wallet, among other things. So it shouldn’t come as a surprise that Square has also entered the world of online lending.
The mobile processing behemoth took their first stab at business financing in May of 2014. Originally, the loans were structured like a bit like merchant cash advances (MCA). Established Square users were eligible to borrow a certain amount of capital. The money was later repaid by taking a percentage of the merchant’s credit card sales.
Square has made changes to their model over time, the most significant of which is that they recently changed their financing model to something more resembling a short term loan. The new model is very similar to that used by PayPal Working Capital.
Square Capital has been an extremely lucrative source of income for Square. I believe that this is largely because Square genuinely has a good product. To be clear: the fees are not ideal. You’re looking at repaying between $1.10 – $1.16 per every $1.00 borrowed. If your term length is the expected 10 months, that translates to an APR of roughly 30% (see here to understand how APRs work with short term financing).
However, Square makes up for the expensive capital by providing just about the easiest lending process you can imagine. Think about it: Square is an all-in-one solution: your payment processor, your POS, and your lender. There’s no need for extensive underwriting—they already have your information and cash flow stats. Collection isn’t a concern because Square already collects money for you. Square giveth, and Square taketh away.
If I had one complaint, it would be the inconsistent customer support. We’ve noted in our main review of Square that support services (or lack thereof), are a problem with the company at large, and Square Capital is no exception —just look at the comments at the bottom of this review for proof. Regardless, if you’re eligible for an advance from Square Capital, you’re probably already used to the level of support provided by the company.
If you’re not using Square, and you aren’t planning on using Square, go ahead and stop right here; this lending service is currently only available for Square users (though that will be changing in the near future). Don’t worry—there are plenty of other lenders that want your business.
Still interested? read on for the details!
These are the qualifications required to get a loan from Square Capital:
|Time in business:||N/A|
In addition, you must meet these requirements, according to Square’s website:
- Be an active Square user with a growing business
- Have a history with Square
- Have a mix of returning and new customers
Be aware that Square Capital is a bit unusual in that you do not come to them; they come to you. For more information, check out the Application Process section.
Terms and Fees
These are the rates and fees for Square Capital’s loans:
|Borrowing amount:||$1K – $100K|
|Term length:||No set maturity date|
Maximum of 18 months
|Fixed fee:||1.1 – 1.16|
Square does not use interest rates. Instead, you’re charged a one time fee that’s paid back over the life of the loan. Be aware that this means you cannot save money by repaying your loan early.
You have a total of 18 months to repay your loan. Square keeps you on track by stipulating that you have to repay 1/18th of your loan every 60 days. For example, if you borrow $5K and have to repay $5,650, you have to repay at least $314 every 60 days. Given that Square automatically takes out a percentage of every sales transaction, merchants will only have to deal with the 1/18th rule if their sales decline.
If you don’t repay your loan within the allotted 18 months, the remaining money will become due in one lump sum. Square loans appear to be underwritten to mature in about 10 months so, again, this won’t be a problem for most merchants.
The Square Capital Agreement used to be accessible to anybody with a Square account via this page, but it had disappeared last time I checked in. Regardless, you will have access to the agreement before you accept the capital. I strongly encourage you to read the document before doing so.
If you’re eligible for Square Capital, you’ll get a dashboard alert on your Square account. You can find your offers under the Capital tab in your account.
If you’re not currently eligible, you can fill out a survey via the Capital tab. They’ll ask for basic business and financial information. I have no idea whether this survey actually does anything or if it’s just there to look pretty, but you can always give it a try.
Once you receive the alert from Square, getting the money is pretty easy: decide how much you want from the options presented to you and request the money. Square will use all the information they have already to verify your identity. They’ll look at your legal business name and taxpayer information, so make sure all that information is correct and up to date. If you haven’t done so yet at this point, you might have to provide identifying information like your driver’s license and social security number.
According to the fine print on the company website, Square has the option to run a credit check on you or your business. However, according to this community post, they do not commonly look at your credit. If they do, it will be a soft pull, which means it won’t affect your score or show up on your credit report.
Once Square has verified that you’re not a terrorist, the money will be deposited into the bank account hooked up to your account. From then on, Square will automatically deduct their cut from any credit or debit transactions you process through their service. If you want to repay part or all of the loan, you can do so via the Capital tab on your dashboard.
Sales and Advertising Transparency
If you’re at all familiar with Square, you know what to expect from their advertising. You’ll find an overview of the service on this page. All the information is, I’m sure, accurate, but Square doesn’t provide a whole lot of details.
In particular, I’d still like to see the company provide a little more information which would help people compare Square Capital to other types of lenders. I’d advise anybody who is considering a loan from Square to understand the cost of a short term loan, and to calculate their APR.
Regardless, I am happy to see that Square has provided more information on their FAQ page since the last time I checked in. Given how difficult communication is with this company (see below), the more information on their help page, the better.
Customer Service and Technical Support
Customer service is, and has always been, Square’s weakness. Support for this particular part of their service is no different.
When you submit a request for support, you’ve got two choices: email or phone. If you choose phone, you’ll be given a problem-specific code to enter when you call up customer service. It sounds like Square is making headway in the customer service department, but many merchants still complain about not being able to get a code or get a hold of a representative.
Square has also recently implemented a quality seller community forum. If you can’t get your answers directly from Square, you may be able to get an answer from the forum mods or your fellow Square users.
Negative Reviews and Complaints
So far, Square Capital has done fairly well in the negative review department.
When investigating complaints, our first stop is generally the Better Business Bureau. Unfortunately, there is no separate page for their lending service, so I got to sort through the 1,300+ complaints on Square’s regular business page.
The complaints about Square’s payment processing service mostly have to do with account stability issues. The good news is that if you qualify for Square Capital, it means the company believes your business is trustworthy and reliable, and thus is unlikely to initiate any actions that might affect the stability of your account.
Complaints specifically about Square Capital are scarce on the BBB page. Fortunately, there’s another source of customer reviews specifically about the lending service in our comments section below. Here are the aspects of Square Capital service with which customers are frustrated:
- Verification issues: Some merchants have reported that they’ve been rejected because the information they supplied to Square could not be verified, even if they had previously been accepted. Because eligibility appears to largely be determined by an algorithm, merchants might not have access to the help needed to fix the problem.
- Rejection due to unusual account behavior: Square Capital likes to see consistency. If your card processing or bank statements show unusual activity over the last few months, you might be rejected for a loan until you can once again prove a consistent pattern of activity.
- Communication issues: Because Square has poor customer service, solving problems related to the above frustrations might be difficult, if not impossible.
- Expensive capital: Square’s loans tend to have APRs around 30%, which is expensive compared to other options you might have available.
It’s also worth noting that if you are a business doing well enough to be eligible for this service, it might be time for your business to switch to your very own merchant account. If you accept an advance from Square, you’re tied down until you repay the company.
That being said, if you need short term financing, Square offers a very compelling deal. Sticking around for a few extra months might be worth it.
Positive Reviews and Testimonials
Square has a couple video testimonials on their website, and a number of merchant reviews on their Capital town square page. You can also find a number of positive reviews across the internet, including our own comments section. In general, merchants are happiest with the:
- Convenient lending process
- Fast access to money
- Hands-off repayment method
As you can see, convenience is the key word when it comes to Square Capital. Merchants essentially like Square Capital for the same reasons I do: the service makes the lending process easy. Once you’ve requested the money, the system will take care of everything else.
I feel it’s my duty to remind you once again that Square is not a cheap form of financing. You’re looking at fees more akin to business credit cards than SBA loans here.
That said, as long as you understand the costs, Square Capital is an excellent resource for eligible merchants. This company has streamlined the lending process—their loans are easy to get and easy to pay off. Some businesses may be able to save a little capital with a different lending service, but Square Capital is the next best choice for merchants who can’t.