Complete Guide to Square Loans: Rates, Terms, Repayment & Renewals
If you’re a Square seller, there’s a decent 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.
Table of Contents
What Are Square Capital Loans?
Square Capital is a short-term loan service within the greater Square payment processing ecosystem that is available only to Square customers. Here are the basic loan facts for Square Capital Loans:
- Maximum Borrowing Amount: $300,000
- Borrowing Fee: x1.10 – x.1.16 amount borrowed
- Term Length: 18 months maximum
- Time To Funding: 1-3 days
- Borrower Qualifications: Square customer in good standing with a growing business and $10,000/year in revenue.
Square loans resemble merchant cash advances in structure, although the rates are significantly better than what you’d typically find in the merchant cash advance world. Traditionally, merchant cash advances required special arrangements with compatible payment processors to withhold a percentage of the customer’s card payments. Square is effectively cutting out the middle man, or more precisely, the middle man is cutting out the funder and directly offering the money to merchants.
I bring up that little aside because it explains why Square Capital loans work the way they do. Square lends money to its processing customers to help grow their business, the growth of which increases the volume of credit card transactions Square is processing. Square then uses its own processing infrastructure to collect payments and turn a profit on the interest/flat fee.
So now that we’ve established that it’s a good deal for Square, you probably want to know if it’s a good deal for you and your business.
How Square Capital Loans Work
Let’s take a closer look at how Square Capital loans work.
Square Capital Rates & Fees
As is typically the case with short-term lending, Square uses a flat fee structure rather than an interest rate. What this means is that the amount you pay in excess of the principal (the amount you borrow) is simply a multiple of the amount you borrow. In Square’s case, this multiple ranges between 1.1 and 1.16.
So for example, let’s say you borrow $10,000 from Square at a 1.12 rate. You’d owe a total of $11,200 ($10,000 x 1.12). You could also think of it as cost $0.12 for every dollar you borrow.
Total cost = Amount you’re borrowing x the factor rate multiplier
This is the only fee Square Capital charges beyond whatever you’re paying for other Square services.
How To Repay Your Square Capital Loan
Repaying your Square Capital loan is actually a very hands-off process. You’re already processing your sales through Square’s payment infrastructure, so what Square does is claim a percentage of your daily sales.
Because your daily sales vary, the amount you’ll repay on any given day will also vary. That’s why there’s no set term length. If sales are booming, you’ll repay it quickly. If they’re sluggish, it’ll take longer. If you haven’t paid off the loan within 18 months, any remaining balance will immediately be due in full.
How To Get A Square Capital Renewal
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, this is a passive process. It’s possible our business might not fit what the company is looking for, even if it’s 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.
Square Capital Borrower Eligibility Requirements
Only Square knows for sure whether any given company is an eligible borrower. The stated requirements are:
- Be a Square customer
- Have annual revenue of at least $10,000
- Show growth in sales
- Have a mix of returning and new customers
The following issues may disqualify you:
- You have a lot of chargebacks.
- You process a lot of failed debits.
- You have multiple Square accounts.
Square Capital Application Process
Square’s application process is a bit unusual. Rather than apply for a loan, Square will monitor your account and decide whether or not to extend you credit. If your account is eligible, you’ll receive a notification by email and an alert on your Square account. If this sounds like a good deal to you, follow the attached instructions, decide how much money you’re willing to accept from the available options, and await processing.
Square should already have a lot of your information on file, so you’ll only be contacted for more information if there’s anything missing. Further, Square does not perform a credit check. This makes it a great option for borrowers with bad credit or who are worried about credit checks affecting their score.
Once approved, Square will usually deposit the funds during the next business day, although it can take up to three days for the funds to show up in your bank account.
How Square Capital Compares To Other Lenders
Comparing Square Capital to other lenders that use factor rates is fairly straightforward, but it can be a little difficult to compare the company to lenders that use interest rates.
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. 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 Short-Term Loans, Merchant Cash Advances, & APRs feature. Now let’s look at some popular short-term funding alternatives to Square Capital.
PayPal Working Capital
If we’re talking apples-to-apples comparisons, PayPal Working Capital is probably the most obvious one. Like Square, PayPal is also a payment processor that offers short-term loans to its customers. In fact, PayPal’s loans are structured almost identically to Square’s: you’ll be offered a loan through your dashboard if you qualify, and PayPal will automatically collect payments from any transactions that go through them.
PayPal’s terms are similar to Square’s right down to the 18-month maximum term. The borrowing cap is a little lower for PayPal however, reaching $200,000 on your third loan. For your first and second it’s $125,000. Additionally, PayPal’s factor rates fall within a wider range than Square’s: between 1.01 and 1.58. All else being equal, Square Capital’s loans will probably be a better deal for the typical business. Still, the deciding factor here will probably be whether or not you choose Square or PayPal for your payment processing.
It’s funny to think OnDeck as “traditional,” but compared to Square Capital it is. OnDeck is one of the oldest online lenders, and one of the first to use digital technology to expedite the loan application process. These days OnDeck offers both short-term loans and lines of credit.
OnDeck won’t be quite as convenient for Square customers, but for everyone else, it’s far more accessible. OnDeck’s borrowing limit, $250,000, is a little lower than Square Capital’s loans with repayment terms as long as 36 months. However, OnDeck’s rates can get a little high as the factor rate (1.003 – 1.04) is applied monthly rather than just one time. OnDeck’s line of credit has no Square Capital counterpart, but it can be good for periods where you need a pool of money to draw upon as needed instead of a lump sum.
If Square Capital’s system seems a bit too restrictive, you may want to consider Breakout Capital. Structured a bit more like traditional bank loans, Breakout Capital’s loans may be more likely to hit the comfort zone of some businesses. Breakout Capital’s qualifications are more stringent and require a 600 credit rating and $10,000 in revenue per month (compared to Square’s $10,000 per year).
Breakout Capital loans can last up to two years and be paid back daily, weekly, or monthly. Like OnDeck, Breakout Capital uses monthly factoring (1.0125 – 1.035). Loans are capped at $250,000.
Square Capital FAQs
Square Capital is an easy-to-understand, convenient loan product 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.