Square Loans: Worth The Risk?

Square loans are merchant cash advances offered by Square Capital to small businesses that use Square to process payments. Square loans are repaid using a percentage of daily sales, with no fixed repayment amount. The loan does not require collateral or a personal guarantee, and receiving a Square loan does not impact the credit score. While the rates are cheaper than merchant cash advances, it is still an expensive way to borrow. Square loans have received mixed reviews, with some users praising the ease of the repayment system and others criticising the high fees and holdback rates.

Square loans are not a scam

Firstly, it is important to note that Square loans are not actually loans in the traditional sense but are instead merchant cash advances. This means that Square offers you the chance to "borrow" cash upfront before customers pay you, with the belief that your sales will allow them to recoup the money without waiting for you to earn it and pay them back, plus a set fee rather than interest. This set fee is typically between 10% and 16% of the loan amount, and it remains the same whether you pay off your loan in one day or one year.

Square loans are relatively easy to qualify for compared to other lenders, and they do not require great credit scores or tax returns. They are also relatively fast, with funds usually being received within one to three business days. However, there have been some issues with verifying bank information, and Square will continue to take payments even if you have met the minimum 60-day threshold amount.

In conclusion, while Square loans may not be a scam, it is important to carefully consider the pros and cons before deciding whether or not to take out a loan.

Square loans are merchant cash advances

Square loans have attributes similar to cash advances, including a fixed total repayment amount, no set interest rate, and automatic repayment through deductions from credit card sales. The repayment structure is based on a percentage of daily credit card sales, with no set repayment date. This means that on days with strong sales, you pay off more of the loan, and on days with no sales, you don't pay anything. However, there are minimum payment thresholds to be met every 60 days.

Square loans can be attractive, especially for small businesses or those with credit issues, as they do not require collateral or perform a credit check. This makes it a viable option for borrowers with bad credit or those who don't want their credit scores impacted by loan inquiries. The funds are typically deposited within a few business days, providing fast access to working capital.

While Square loans offer convenience and accessibility, it's important to carefully consider the potential drawbacks. The fees associated with Square loans can be high, ranging from 10% to 16% of the loan amount, which equates to an APR of approximately 6.7% to 10.7%. This is often higher than the interest rates offered by traditional small business loans. Additionally, the lack of a set interest rate and the varying repayment amounts based on sales can make it challenging to predict and manage cash flow.

In conclusion, Square loans, as merchant cash advances, can be a convenient option for businesses in need of quick capital and with consistent credit card sales. However, it's essential to weigh the pros and cons carefully, including the potentially high fees and unpredictable repayment amounts, before deciding if Square loans are worth it for your business.

Pros and cons of Square loans

Square loans are merchant cash advances that can be a good option for small businesses that are unable to secure a loan through traditional avenues. They are relatively fair and safe, and not a scam. However, they do come with pros and cons that can have a big impact on your small business.

Pros

• Square loans are convenient and easily accessible, especially for businesses that are unable to secure a loan through traditional means. There is no minimum credit score or time in business required, and no need to fill out an application or provide documentation.
• The loan amount, repayment terms, and eligibility criteria are customizable.
• There is no collateral or personal guarantee required, so neither your business nor personal assets are at risk.
• The loan is aligned with your cash flow, and you don't have to remember to send a check.
• You can pay off your loan early if your sales are good.
• Square loans can provide short-term investments when banks refuse to take a chance on new entrepreneurs.

Cons

• Square loans are not actual loans but merchant cash advances. Square offers you the chance to borrow cash upfront before customers pay you, and they recoup it from your future sales.
• Square loans are invite-only and not everyone is offered one. You won't know if you qualify until you receive an offer.
• The fees are relatively high, ranging from 10% to 16% of the loan amount, which equates to approximately a 6.7% to 10.7% APR. This is slightly higher than the typical interest rate for a small business loan.
• Square takes a predetermined share of your credit card receipts each month, and on days when your sales are strong, you'll pay off more of your loan.
• There are minimum payment thresholds that must be reached every 60 days, and if you fail to meet them, Square can automatically deduct the remaining amount from your linked bank account.
• There is no financial benefit to paying the loan early.
• There are no prepayment penalties, but since the fee is charged upfront, you won't save money by paying early.
• Square loans may not be a good option if you don't have the cash flow to back it up.

Square loan eligibility

Square Loans are offered by invitation only. If you are eligible, you will receive a notification on your dashboard, showing you the maximum amount you can receive.

Eligibility is determined by a variety of factors, including payment processing volume, account history, and payment frequency. In general, businesses that have processed at least $10,000 or more in a year are more likely to be eligible for an offer. The frequency of card payments you process through Square matters, too. A steady pattern of payments shows that your business is healthy, and a good mix of new and returning customers shows that your business is growing.

Square will also take into account whether you have had a loan application declined recently, whether your account has been under review, and whether there have been any payment disputes.

It is worth noting that, while you can check your eligibility on the Loans tab of your Square Dashboard, eligibility reviews happen regularly and automatically, and you will be notified when you are eligible.

Square loan repayment structure

Square loans are merchant cash advances, not loans in the traditional sense. This means that Square offers you the chance to "borrow" cash upfront before customers pay you, based on the belief that your sales will allow them to recoup the money without waiting for you to earn it and pay them back, plus a set fee rather than interest.

Square loans have a flat fee structure rather than an interest rate. This means that the amount you pay in excess of the principal (the amount you borrow) is simply a multiple of the amount you borrow. The fee typically depends on your borrowing amount. Generally, the higher the borrowing amount, the higher the fixed fee. A multiplier, called a factor rate, determines the fee. Square Capital’s factor rates range between 1.10 and 1.16. This means that your fixed fee is between 10% and 16% of your loan amount.

Square does not offer any incentive such as discounts or rebates for early repayment. There is no maturity date on your loan; however, the maximum repayment term is 18 months. If you haven’t paid off your loan at the end of 18 months, you are obligated to pay the remaining balance. Repayment is automatically deducted from daily sales, with no set term length. Square will take a percentage of your daily credit card sales every time you process a card transaction. On days when your sales are strong, you’ll pay off more of your loan. On days when you don’t have any sales, you don’t have to pay anything.

There are minimum payment thresholds you must reach every 60 days, and you can schedule additional payments if necessary. In the event that you fail to meet the minimum 60-day payment, Square can automatically deduct the remaining amount to reach that threshold from your linked bank account. You can pay off your loan early if your sales are good. However, since you paid a flat fee for the loan, there’s no financial benefit to paying the loan early except to get it over with and stop losing a percentage of your card sales.

Square also accepts debit card payments for loan repayments over the phone. You can also repay your loan by check or money order, made payable to Square Financial Services, and mailed to the following address: JP Morgan - Lockbox Processing Attn: Square Financial Services - 22402 4 Chase Metrotech Center 7th Floor East Brooklyn, NY 11245.

Frequently asked questions