Square Capital Review: Breakdown, Pros & Cons, How to Apply

Lender Reviews

Jacques Famy Jr
Review By Todd Millman

What are Square Loans?

Square Loans, also known as Square Capital, is a financial service provided by Square, Inc., designed to offer quick and accessible funding to small businesses that use Square's point of sale systems. The service targets merchants who might find it challenging to secure traditional bank loans, offering them a simpler alternative to boost their business operations.

Square, renowned for its point-of-sale systems and payment processing solutions, has also made significant strides in small-business financing. Originally launched as Square Capital in 2014, the company initially offered a merchant cash advance product, providing businesses with a lump-sum advance in exchange for a percentage of future sales. However, in 2016, it evolved its financial products by introducing Square Loans, a flexible loan option tailored to small businesses.

To qualify for these loans, businesses are required to utilize Square's payment processing services, which have been vital for those accustomed to older systems. Since its inception, Square Capital has extended over $9 billion in financing through MCAs, demonstrating its substantial impact on the small business sector.

Unlike conventional loans with fixed monthly payments, Square Loans provides a unique repayment method: a fixed percentage of daily card sales made through Square is automatically deducted as repayment. This dynamic approach to settling the borrowing amount means that the repayment amount flexibly adjusts with the business's sales volume, potentially easing the financial burden during slower business periods.

The appeal of Square Loans lies in its straightforward application process and fast funding. Due to being a payment processor, Square can swiftly assess a business's eligibility for a loan by analyzing its sales history through the Square system, which is a quicker process compared to traditional bank loan applications.

There are no ongoing interest charges; instead, borrowers pay a single, upfront fee determined at the start of the loan. This transparent pricing model ensures that the total cost of the loan is clear from the beginning, allowing business owners to plan their finances more effectively and with confidence about the competitive borrowing amounts they're securing.

square loans website

How does Square Business Loan work?

Square Capital Business Loans streamline the financing process for small business owners by leveraging their existing transaction data through Square's point of sale system. Utilizing an advanced algorithm, Square Capital evaluates this data to proactively offer loans tailored to each business, taking into account factors such as sales history and cash flow, rather than solely relying on traditional credit metrics.

Once a business qualifies, Square presents a loan offer directly within the user dashboard, detailing the loan amount, the fixed borrowing fee, and the repayment percentage of daily sales. This transparent, preemptive offer system simplifies decision-making for business owners, providing them with a clear understanding of the terms without the need for negotiation.

The repayment process of Square Capital loans is particularly appealing to seasonal businesses or those with fluctuating sales volumes. Since repayment is a fixed percentage of daily credit and debit card sales processed through Square, payments adjust according to the business’s sales activity. During peak sales periods, a business pays more towards the loan, and during slower periods, the payments are lower. This dynamic repayment structure can help businesses manage cash flow more effectively, as it naturally aligns with their operational cycle. Additionally, there are no late fees or penalties for longer repayment periods, which adds a layer of financial security for business owners during uncertain times.

Example of a Square Capital Loan

Let's break down a real-world example of a Square Capital Business Loan's structure. Imagine a business is approved for a $10,000 loan with a factor rate of 1.2, and it consents to returning 15% of its daily card sales.

Here are the details:

Loan AmountThe original sum borrowed, here $10,000.
Factor RateA metric determining the total cost of the borrowing fee. In this case, a factor rate of 1.2 applies.
Total FeeCalculated via the equation: (Loan Amount × Factor Rate) - Loan Amount. For our $10,000 loan, the math would be $10,000 × 1.12 = $11,200, leading to a total fee of $1,200.
Holdback PercentageThe daily card sales percentage dedicated to repaying the loan. For this illustration, Square retains 15% daily, meaning 15% of the business's card transactions through Square are earmarked for loan repayment.
ExampleIf the business has $500 in card sales one day, the calculation is straightforward: Daily Repayment = Daily Sales × Holdback Percentage = $500 × 0.15 = $75. Thus, $75 is automatically subtracted for that day's loan repayment. This continues until $11,200 is completely paid off. The flexibility of this plan ensures that repayment aligns with actual business performance.

You can make additional payments toward your loan and repay it early without a penalty; however, since Square discloses your borrowing fee upfront, there is no financial benefit from early repayment.

square business loans

Square Capital Business Loan Product Features

Product DetailsTerms
Credit limit$300 up to $250,000
Repayment Time Frame3 to up to 18 months
Interest RatesSquare charges a Flat Fee Factor Rate from 1.10 % up to 1.18%
Payment FrequencyA set percentage of future daily Square credit card processing deduct from batch until paid back in full
Personal GuaranteeNo Personal Guarantee
Additional FeesNo Prepaymment Penalty, No Monthly Maintenance Fee. No Draw Fee. Simple flat fee with no ongoing interestor additional fees.
Merchant Credit Card ProcessingYou must use Square Merchant Processing Platform
States ServedSquare Capital issues loansin all States except North Dakota. The agreement is governed by Utah law and/or applicable federal law, including the Federal Arbitration Act.*
Time to FundMinutes, fundhit bank account in as little as 1 business day

*All Square loans are issued by Square Financial Services, Inc. , a Utah-Chartered Industrial Bank, Member FDIC, ensuring a balance of security and accessibility. With borrowing amounts ranging from as little as $300 to a maximum of $250,000, business owners can tailor their loan to their specific needs. Moreover, the loan terms remain flexible, allowing for a duration of up to 18 months without a set maturity date to maintain cash flow without the pressure of a looming deadline.

Customizable loan amounts mean that businesses can select only the sum they need, even if they qualify for the maximum offer available. To determine offer eligibility, Square Capital invites owners to check the Loans tab on their Square dashboard and to stay vigilant for updates via email. Remember, even though the offer eligibility is reevaluated automatically, timing for a new loan offer can vary—there's no predetermined schedule for when these opportunities might arise.*

What are the Qualifications for Square Capital Loans?

Qualifying for Square Capital loans primarily depends on your business's history and performance with Square's payment processing services. Unlike traditional business loans that rely heavily on credit scores and extensive financial documentation, Square evaluates factors more reflective of a business's current operational health.

Here’s a breakdown of the key qualifications:

  • Minimum Credit Score: Square doesn't disclose a minimum credit score for business financing.
  • Minimum Business Revenue Required: Square doesn't publish exact eligibility criteria for its small business loans, but businesses generally need to process at least $10,000 in annual sales through Square to qualify.
  • Square Sales History: Regular use of Square for processing customer payments is essential. Square looks at the volume and frequency of transactions to assess business stability and growth potential.
  • Account History: Businesses need to have an active Square account in good standing for a minimum duration, usually a few months, to qualify.
  • Payment Frequency: The consistency of transactions, including the frequency of deposits, plays a critical role. More consistent sales indicate a healthier business capable of repaying the loan.
  • Business Type: Certain industries and business types are more likely to qualify based on Square's risk assessment criteria.
  • Location: Eligibility may also depend on the location of your business, as Square's financial products are not available in all regions or countries.

This approach enables Square to tailor their financial products effectively, ensuring that loans are accessible to small businesses that might not meet the strict criteria of traditional banks.

Industries Ineligible for Square Capital:

  • Square Capital loans are only available to businesses that are Square customers and process credit card payments through Square's POS system. 
  • Tax exempt organizations, such as nonprofits and charities, are not eligible for Square loans.

Square Capital State Restrictions:

  • Square Capital issues loans in all states except North Dakota.

What Is Square Capital Business Loan Interest Rates and Fee Structure?

Square Capital does not utilize traditional interest rates for its loans. Instead, they charge a one-time fixed fee calculated as a factor rate, which means you pay a total amount that is clear from day one. With a focus on transparency, Square Capital's approach to fees is designed to support businesses seeking straightforward financial products without the surprises associated with variable interest rates.

Here are the key details regarding how costs are calculated for Square Capital loans:

  • Factor Rate: Typically ranges between 1.1 to 1.16. This rate is multiplied by the loan amount to determine the total repayment amount. For instance, borrowing $10,000 at a factor rate of 1.1 results in a total repayment of $11,000.
  • Fixed Fee: This fee is a result of the factor rate applied to the loan amount. For example, a $10,000 loan with a factor rate of 1.1 would have a total repayment of $11,000.
  • No Periodic Interest: With no ongoing interest charges or compounded rates, the cost is fully transparent.
  • No Additional Fees: There are no hidden charges with Square Capital loans. This includes absence of processing fees, origination fees, and importantly, no prepayment penalty if you decide to settle your debt early.
  • Eligibility Factors: Square assesses factors like processing volume, customer mix, and your history with Square when determining your eligibility for a loan, allowing for a personalized financing solution.

This pricing model is particularly suited for businesses that appreciate a simple, predictable structure, where the true cost of financing, including potential taxes and other fiscal considerations, is made clear from the beginning.

What are the Pro's and Con's of Square Capital?

Square Capital loans offer a distinctive approach to financing that aligns well with the needs of small businesses, especially those already using Square's payment processing services. The main advantage of these loans is their straightforward, transparent terms and the flexibility of repayment based on daily sales, which reduces pressure during slower business periods.

However, there are also some drawbacks to consider:

Pros of Square Capital Loans:

  • Ease of Application: No extensive paperwork; offers are made directly through the Square dashboard based on your sales data.
  • Automatic Repayment: Payments are deducted as a fixed percentage of daily card sales, adjusting with your business's cash flow.
  • Clear Cost Structure: The total cost of the loan is stated upfront with no hidden fees, making financial planning simpler.

Cons of Square Capital Loans:

  • Limited Eligibility: Only available to merchants who use Square's payment processing services, limiting access for businesses not on this platform.
  • Potentially Higher Costs: While the fees are fixed, the factor rates can result in a higher total cost of capital compared to traditional loans with lower interest rates.
  • No Benefit from Early Repayment: Since the fee is fixed, there's no cost saving from repaying the loan early, unlike traditional loans where early repayment reduces interest payments.

Overall, Square Capital loans can be a convenient and flexible financing option for Square users, but they may not suit every business, particularly those looking for the lowest possible borrowing costs or those not using Square services.

How to apply with Square Capital and What Documentation do You Need to Apply?

Applying for a loan with Square Capital is streamlined and differs notably from traditional loan applications due to its integration with Square’s existing systems. Since eligibility is primarily determined by your sales history with Square, the application process is largely automated. Offers are extended directly through the Square dashboard to qualifying businesses, eliminating the need for initial applications.

Here’s how the process works and what documentation is typically required:

How to Apply with Square Capital Loans:

  • Automatic Eligibility Assessment: Square Capital efficiently audits your transaction history and account performance to ascertain your eligibility requirements for a loan, ensuring a personalized and data-driven approach.
  • Loan Offer Notification: If eligible, you will receive a loan offer directly in your Square dashboard, which includes detailed terms and a clear outline of repayment details.
  • Acceptance: To proceed, you can effortlessly accept the loan offer through the dashboard, facilitating a smooth transition to acquiring the capital you need for your business.

Documentation Needed to Apply:

  • Square Account Details: Since offers are based on your account activity, no additional application or financial documentation is typically required.
  • Verification Documents: In some cases, Square may request additional documentation to verify the identity of the business owner or the legitimacy of the business, though this is less common.

This approach eliminates much of the hassle associated with traditional bank loans and is designed to provide a quick, easy funding solution for small businesses that are already integrated into the Square ecosystem.

How to manage your Square Capital account?

Managing your Square Capital loan account is straightforward, thanks to Square's user-friendly dashboard that integrates both your sales and loan management in one place. The dashboard allows borrowers to monitor their loan balance, track repayment progress, and review the terms of their loan effortlessly. Here’s a detailed look at how to manage your account effectively:

Managing Your Square Capital Loan Account:

  • Access Your Dashboard: Log into your Square account to view your loan balance and repayment history directly on your dashboard.
  • Automatic Updates: Your account updates automatically with each sale, showing how much has been repaid and the remaining balance.
  • View Repayment Details: Detailed information on the percentage of daily sales applied to your loan and the expected timeline for repayment can be accessed easily.
  • Customer Support: For any queries or issues, Square provides robust customer support. You can contact them directly through the dashboard for personalized assistance.

This integrated approach not only simplifies loan management but also helps you keep a close eye on your financial commitments without needing to juggle multiple platforms or tools.

How Long does it take to fund with Square Capital?

The funding process with Square Capital loans is exceptionally fast, reflecting the company's emphasis on efficiency and customer convenience. Once a loan offer is accepted through the Square dashboard, funds are typically deposited into the borrower's linked bank account as soon as the next business day. This quick turnaround is a significant advantage for small business owners in need of prompt financial support.

Timeline for Funding with Square Capital Loans:

  • Offer Review and Acceptance: Immediately after you receive and accept a loan offer via your Square dashboard.
  • Fast Processing: Square processes the acceptance and prepares the funds usually within one business day.
  • Deposit of Funds: The loan amount is deposited directly into your linked bank account, typically by the next business day after acceptance.
  • Immediate Notification: Borrowers receive notifications through their Square dashboard and via email about the status of their loan and the deposit.

This streamlined funding process is designed to eliminate wait times and bureaucratic delays, making it easier for businesses to get the capital they need without disrupting their operations.

How good is Square Capital Customer Service?

Square Capital is known for its robust customer service, which is highly rated by many of its users. The service is tailored to be as responsive and accessible as possible, helping business owners navigate their loans or resolve any issues they might encounter quickly.

Here’s an overview of what makes Square Capital’s customer service stand out:

Strengths of Square Capital Customer Service:

  • Multiple Channels for Support: Customers can reach out via phone, email, or through their online help center, providing various avenues to get assistance.
  • Dedicated Support Team: Square has a dedicated team that specializes in loan support, ensuring that customers receive expert advice tailored to their financial needs.
  • Quick Response Times: Square aims to provide prompt responses, minimizing downtime and allowing businesses to focus on their operations without prolonged disruptions.
  • Helpful Resources: In addition to direct support, Square offers a wealth of online resources and FAQs that help users understand their loans and manage their accounts more effectively.

This commitment to excellent customer service ensures that borrowers have a positive experience throughout their loan term, from application to final repayment.

What do I do if my business is declined by Square Capital?

Being declined by Square Capital can be disappointing, but there are several proactive steps you can take to understand the decision and improve your chances for future approval. Square often bases its decisions on transaction history and overall account health, so enhancing these areas can be beneficial. Here’s what you can do if your business is declined:

Steps to Take After Being Declined by Square Capital:

  • Review the Decline Notification: Square provides reasons for loan denial. Reviewing these reasons can help you understand what aspects of your business or financials need improvement.
  • Improve Your Square Transaction History: Increase your use of Square’s services and improve the consistency of your transactions to build a stronger financial profile.
  • Check Account Standing: Ensure your Square account is in good standing without any unresolved issues.
  • Explore Other Financing Options: Look into alternative funding sources such as Advancepoint Capital which is a business loan marketplace of products, traditional bank loans, business credit lines, or other fintech lenders that may have different qualification criteria.
  • Reapply When Ready: After making improvements, consider reapplying. Square reassesses eligibility periodically, so maintaining a positive transaction history can increase your chances of future approval.

These actions can help you better position your business for funding, whether through Square Capital or alternative channels.

3rd Party Customer Reviews

Trust Pilot Reviews

Jewel Hoskins | Date of experience: April 12, 2024

Very disappointing… I was very excited about the Square Loans. They were really helping my business it has been very hard getting a new offer. Even with business sales increasing and all my remarks are green. Customer service is NO help. We should be able to apply for more business funding loans…..!! Thinking about taking business over to PayPal

KNW Publishing | Date of experience: Jan 19, 2024

Square Loans was a timely alternative that boosted our working capital at a time a boost was needed. Applying is seamless, yet thoroughly structured, leaving no question to how it works. The dashboard is very user friendly, and you are able to render your loan payment via daily sales and processing-making it a convenient and easy process. We recommend Square Loans for your short term business needs.

Alternatives to Square Capital

Alternative lenders to Square Capital offer a variety of lending options tailored to the unique needs of different businesses, from fintech innovations to traditional banking services. Each alternative provides distinctive terms and criteria, affecting the suitability for various business types and financial situations.

Clover Capital

  • Credit Limits: Based on merchant sales volumes.
  • Interest Rates: Fixed fee instead of traditional interest.
  • Term Lengths: Tied to a percentage of daily sales until repaid.
  • Time in Business Requirements: Generally a few months of processing history.
  • Minimum Annual Business Revenue: Dependent on sales volume.
  • Minimum Personal Credit Score: Not typically disclosed.

PayPal Working Capital

  • Credit Limits: Up to 35% of annual PayPal sales.
  • Interest Rates: Single fixed fee.
  • Term Lengths: Repayment through a percentage of daily sales.
  • Time in Business Requirements: At least 3 months of PayPal sales history.
  • Minimum Annual Business Revenue: Based on PayPal sales.
  • Minimum Personal Credit Score: Credit check not required for decision.

OnDeck Capital

  • Credit Limits: Up to $250,000.
  • Interest Rates: Starting at 35% APR.
  • Term Lengths: 3 to 36 months.
  • Time in Business Requirements: Minimum of 1 year.
  • Minimum Annual Business Revenue: $100,000.
  • Minimum Personal Credit Score: 600.

LendThrive

  • Credit Limits: Up to $150,000.
  • Interest Rates: As low as 9.99% APR.
  • Term Lengths: Up to 10 years.
  • Time in Business Requirements: 2 years.
  • Minimum Annual Business Revenue: $150,000.
  • Minimum Personal Credit Score: 650.

Spot On

  • Credit Limits: Typically smaller, up to $100,000.
  • Interest Rates: Variable, typically higher than traditional banks.
  • Term Lengths: Short-term, up to 18 months.
  • Time in Business Requirements: None specified.
  • Minimum Annual Business Revenue: Lower requirements.
  • Minimum Personal Credit Score: Flexible, lower requirements.

Wells Fargo

  • Credit Limits: Up to $500,000 for lines of credit and more for larger loans.
  • Interest Rates: Competitive rates based on business creditworthiness.
  • Term Lengths: Varies, generally from 1 to 5 years for term loans.
  • Time in Business Requirements: Preferably 2 years.
  • Minimum Annual Business Revenue: Typically $50,000 or more.
  • Minimum Personal Credit Score: 650 or higher preferred.

These alternatives provide diverse financial solutions, from quick-access, high-cost loans for urgent needs to longer-term, lower-rate options for stable, growing businesses. Choosing the right lender involves balancing the cost of borrowing with the flexibility and terms offered, ensuring alignment with the business's financial health and goals.

The Bottom Line: Square Capital Review Summary

Square Capital loans stand out in the landscape of business financing due to their unique integration with Square's payment processing system, offering a seamless and efficient funding experience. These loans are tailored for small businesses, particularly those that may struggle to secure traditional bank financing. The application process is straightforward, with no need for extensive paperwork, and eligibility is largely based on the transaction history within the Square ecosystem. Repayment terms are flexible, with automatic deductions based on a percentage of daily sales, which adjusts according to the business's revenue flow. This means during slower sales periods, the repayment amount decreases, alleviating financial pressure.

Key Points of Square Capital Loans:

  • Application Ease: Automatic loan offers based on Square sales data, with minimal application process.
  • Flexible Repayment: Repayments are a percentage of daily sales, which aligns well with business cash flow.
  • No Collateral Required: Loans are unsecured, not requiring any collateral, which is beneficial for small businesses without significant assets.
  • Fast Funding: Funds are typically available as soon as the next business day after loan acceptance.
  • Customer Service: Strong support through multiple channels, ensuring that borrowers can get assistance when needed.

Conclusion

Square Capital loans offer a distinctive advantage for small businesses in need of prompt and accessible funding without the complexities of traditional loans. The integration with a business's revenue flow, providing a tailored financial solution that adjusts to the fluctuating requirements of an expanding enterprise, is particularly valuable.

Although the cost may be slightly higher than some traditional loans, the convenience and expedited access to funds are often a justifiable exchange for businesses in urgent need of capital. To benefit from this opportunity, eligible businesses may receive an invitation to apply, which facilitates a streamlined process initiated with just a few clicks on their Square dashboard.

Importantly, maintaining a clean chargeback history is crucial; as chargebacks can affect eligibility. Square has established simple criteria, ensuring that even without a perfect credit history, businesses can access these loans, often with a no-hassle, no-chargeback filing process.

Furthermore, taking advantage of Square Capital's offerings is straightforward: one can create a user account via the company's website and stay informed about loan opportunities through dedicated updates on Square's platform, maintaining the integrity of the platform and providing financial insights with transparency. The platform's consultation services are designed to address individual company concerns, reflecting Square's adaptability for different types of businesses.

Frequently Asked Questions

Does Square Capital run a hard pull or soft pull on personal credit?

Square Capital primarily uses a soft pull to evaluate eligibility for its loan products, which means applying for a loan won't impact your credit score. This approach allows businesses to explore financing options through Square without the concern of harming their credit with a hard inquiry.

How fast can I fund my business with Square Capital?

Square Capital is known for its rapid funding process, typically disbursing funds to a borrower’s account as soon as the next business day after a loan offer is accepted. This speed ensures that businesses can access the capital they need without significant delays, aiding in quick financial management and opportunity response.

Does Square Capital Require Collateral?

Square Capital does not require physical collateral to secure a loan, making it more accessible for small businesses that may not have significant assets to pledge. This unsecured loan approach allows businesses to obtain financing based solely on their cash flow and sales history through Square.

How Many Times Can You Get a Square Capital Loan?

There is no set limit on the number of times a business can receive funding from Square Capital, as long as they continue to meet eligibility criteria and have successfully repaid previous loans. This flexibility allows businesses to repeatedly access capital for growth or operational needs whenever opportunities or challenges arise.

Will future Square Capital Loans have better terms than my first one?

The terms of future Square Capital loans may improve if your business shows increased sales and a solid repayment history on prior loans, reflecting lower risk to the lender. Consequently, Square might offer larger loan amounts or possibly more favorable terms as your business relationship with them strengthens over time.

Jacques Famy Jr

Small Business Loan Calculators

Calculate your financing costs using our nifty calculators now.