Square, the mobile payments company, is now introducing a service to give loans to companies. Last week, Square launched Square Capital, which advances money to small businesses that are in a cash flow crunch or need quick access to capital to grow their companies. Square will at least initially only make the service available to merchants that are already using its mobile credit-card processing service.
Small businesses won’t need to apply for a loan, but rather they’ll pay it back over time by Square taking a varying percentage of the company’s future sales that come through its payment processing service. Square usually takes 2.75% of each transaction, but a small business that took a Square cash advance might pay back 10% on top of the 2.75% until their advance is paid off. Unlike a traditional loan, Square's cash advance has no timetable for repayment, meaning businesses pay more when sales are good, but aren't handcuffed with payments when things slow down.
"Square Capital is part of a holistic suite of services we're building," says Gokul Rajaram, Square’s product engineering lead. "When we think about what we should work on or what we should build, it's all about asking, 'Do these services help sellers run and grow their business?' Square Capital helps them grow their business."
Square says that it has been piloting the cash advance program with “thousands” of businesses since last year, but is now rolling it out to its full user base. So far, the company says it has loaned out “tens of millions of dollars,” according to Rajaram. “We want to advance as much capital as we can,” he says.