After revolutionizing payment card acceptance for small merchants, Square now is seeking to make waves in the cash advance arena. The company’s newly announced Square Capital program offers next-day cash advances to merchants that use its card reader to process payments—many of which would have a difficult time obtaining a loan from a bank. Advance amounts are based on the processing volume and transaction history of a particular merchant—data Square has on hand. The merchant repays the advance, plus a flat service fee, by giving Square a percentage of future sales (on top of Square’s usual 2.75 percent processing fee). The percentage-based repayment arrangement means merchants pay back more when business is good and less when sales are slow.
Square has been quietly piloting the program since last year and already has provided “tens of millions of dollars” to thousands of small businesses, said Square Product Engineering Lead Gokul Rajaram in an interview with Mashable. Rajaram went on to note that Square Capital—along with Square Market and the recently unveiled Square Order service—all are part of “a holistic suite of services” the company is building to serve small businesses.
The program also could help bolster Square’s sagging bottom line. An email obtained by the Website re/code shows Square offering a $7,300 cash advance to a merchant for a fee of $1,022—or 14 percent of the advance value. That’s considerably more than Square’s 2.75 percent transaction processing fee, which is largely eaten up by fees to payment networks and other intermediaries. In 2013, despite revenues of $550 million, the company posted a net loss of $100 million and, as IPO and acquisition rumors continue to swirl around Square, the company could be looking to shore up its balance sheet.
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