Understanding Your Square Capital Loan Offer

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If you’re a Square seller, there’s a good chance you’ve gotten an offer for a Square Capital loan. There’s no denying that these loans are a fast and easy way to get extra working capital for your business, but are they too good to be true?

Read on to learn everything you need to know about Square Capital.

Square Capital Loan Basics

A Square Capital offer looks something like this:

Typically, when you are deemed eligible for Square Capital, you are given three possible loan options which differ by borrowing amount. If you would like a borrowing amount other than the ones presented, you can also customize your loan offer; you will be able to choose from any amount up to your maximum (usually the first offer shown).

Your loan offer details this information:

  • The Borrowing Amount: The amount of money you will receive from Square Capital after requesting funds. Usually, the maximum you can borrow is about the equivalent of one month of sales.
  • The Fixed Fee: The fee charged for borrowing the funds. This fee pre-determined by a multiplier called a factor rate. Unlike interest, your fixed fee will never change; this is explained in detail below.
  • The Repayment Percentage: The percentage of each payment that will go toward repaying your Square loan and fixed fee. For example, if you process $150 in one day and your repayment percentage is 13%, Square will deduct $19.50.

The fixed fee and repayment percentage fluctuate with your borrowing amount. If you have a lower borrowing amount, your fixed fee and repayment percentage will be lower; if you have a higher borrowing amount, your fixed fee and repayment percentage will be higher.

Because your repayments fluctuate with your cash flow, there is no set date on which the loan will be repaid. Instead, Square simply deducts their set percentage until you have repaid the loan.

That said, you do have to repay your loan in a maximum of 18 months. Given that Square loans are typically repaid in about 9 months, this won’t be a problem unless your sales drastically decrease.

And if you want to repay sooner, it’s possible to repay a portion or the whole of your remaining loan at any time.

Overall, Square Capital loans are relatively easy to understand: you receive a certain amount of money, and you repay the loan plus a fee via a deduction of your daily sales. Square does not hide any important information, and you will not come across any surprises.

Because Square Capital is different than a traditional loan, however, it can be difficult to understand how this loan stacks up against the competition. Read on to learn more about the difference between Square’s fixed fees and traditional interest rates, the purpose of calculating an effective APR, and how Square Capital compares to other popular loan options.

A Note On Renewals

One major point of frustration for Square Capital users is renewals. When they’re nearing repayment, or have repaid the loan in full, some borrowers have simply been waiting for Square to extend another offer to their business, and get frustrated if that offer does not come.

On the Square seller community, representatives have stated that you might be extended a new offer when your current loan is more than 75% paid off. 

Unfortunately, because Square monitors your account activity, your business might not fit what they’re looking for, even if your business is doing as well as (or better than) it was when you received your last loan. If you are not receiving an offer and you need capital, you might want to consider looking elsewhere for business funds.

Fixed Fees VS Interest Rates

Square Capital loans do not carry an interest rate. Instead, your fee is pre-determined by a multiplier called a factor rate. In the example above, the fee is 15% of the borrowing amount, or a factor rate of 1.15. Calculating your factor rate is easy:

factor rate = total repayment amount / borrowing amount

In the example above, $11,500 (repayment amount) divided by $10,000 (borrowing amount) results in a factor rate of 1.15. You can use this number to compare Square Capital to other loan options.

Typically, Square Capital’s factor rates range from 1.10 – 1.16, which means your fee will be between 10% to 16% of your borrowing amount.

Although the rate can be expressed as a percentage, a factor rate is not the same as an interest rate. Interest rates accrue over time, but factor rates are only calculated once. Because Square Capital doesn’t carry interest, comparing it to loan options with an interest rate can be a little difficult. See the next section to learn how to compare Square Capital to its competitors.

A Question Of APR

Because Square Capital uses factor rates, it can be a little difficult to compare the company to lenders that use interest rates.

One way to compare these loans, and get an understanding of exactly how much Square Capital costs, is to calculate the effective APR. Although it’s technically not possible to calculate the APR on a loan without an interest rate, you can estimate the number.

In the examples above, the effective APR is a little under 40% for all three (assuming the borrower repays them in the standard nine months). In other words, if the Square Capital loan had an interest rate, it would be about 40%. Your personal APR will vary depending on your borrowing amount, fee, and the time it takes to repay the loan.

Our Merchant Cash Advance Calculator can give you an estimated APR, as well as other information such as your total cost of borrowing and estimated daily payment. Note that although Square Capital is technically a loan, the merchant cash advance calculator is the best fit because Square Capital loans do not have a set repayment date.

For a more thorough explanation of calculating APR on short-term funding, check out our article on the subject.

Square Capital Loan Rates Compared

Does Square Capital offer a good deal? There are a lot of factors to consider when deciding if a funding product is right for your business, so it might help to know the other options available.

These are some popular lenders that are similar to Square Capital.

Square CapitalOnDeck Term LoanKabbagePayPal Working Capital
Square reviewPayPal review
Read ReviewRead ReviewRead ReviewRead Review
Maximum Borrowing Amount$100K$500K$150K$97K (first loan)
$125K (subsequent loans)
Term LengthNo maturity date
Max 18 months
3 – 36 months6 or 12 months per drawNo maturity date
Max 18 months
Factor Rate or Interest Ratex1.10 – x1.16x1.003 – 1.04 per month1% – 12% per monthx1.01 – x1.58
Additional FeesNone0% – 4% origination feeNoneNone
Estimated APRApprox. 40%6% – 99%18% – 102%Max. 26%

As you can see, rates can vary a lot for Square Capital and its competitors. If you are interested in finding the best rates, you may want to shop around a little to get your personal rates before deciding on a lender.

Head over to the full reviews using the buttons above, but here’s a quick rundown of each lender:

  • OnDeck offers business term loans and lines of credit. You’ll have to be in business at least 12 months and make at least $100K annually to qualify. Its fast turnaround and convenient products make it a favorite among borrowers, even though the fees can get a little pricey.
  • Kabbage offers business lines of credit. You’ll need to be in business at least 12 months and make a minimum of $50K annually to qualify. Borrowers like that Kabbage’s line of credit style loan and online interface mean that there’s always money available if they need it.
  • PayPal Working Capital offers short-term loans very similar to Square Capital. You will have to have a PayPal Business or Premier account to qualify for this type of loan, but it’s a worthwhile way to get fast cash if you do have one.

Final Thoughts

Square Capital is an easy to understand, convenient loan products for Square borrowers. Although the fees can be a little expensive, they’re still generally comparable to or better than those of its competitors. Despite the ease of acquisition, this loan is certainly not a scam.

Check out our full Square Capital review for more information on this loan. Or, if you’re looking for something a little different than Square Capital, check out a comparison of some of our favorite small business lenders.

Bianca Crouse

Bianca Crouse

Bianca is a writer from the Pacific Northwest. As a product of the digital age, she likes absorbing large amounts of information and figures she might as well pass it on. When not staring at a screen, she is probably foraging for food outside, playing board games, or harassing somebody with theories about that movie she just watched.
Bianca Crouse
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    Jim Thomas

    I used my personal cards on my square account …
    I didn’t know this was not
    Learned my lesson!
    Will square capital review and reconsider?
    I follow rules always / but used my cards for purchases in my business for my kids items needed
    Of course they don’t understand that!
    Said I was cash advancing!
    Has anyone else had this happen? And if so do they forgive?
    Currently I’m at 99% /// offer came
    In at 77% — turned
    Me down for cash advance
    Thank you

      Jayce Higgins

      Came across this comment. Have you had any luck ? I had a friend do this same thing but I didn’t hear if anything came of it!

        Kristy Palomino

        I did this and square cancelled my account

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