Square Business Loans: 2022 Review

Square loans are repaid using a percentage of your daily sales rather than a fixed repayment amount.

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Square is now a major player in small-business financing. Since 2014, when the credit card processor began offering merchant cash advances, Square has lent more than $9 billion in MCAs, business loans and SBA loans through the now-shuttered Paycheck Protection Program.

While Square no longer offers MCAs, it does offer fixed-term loans, formerly branded as Square Capital, to businesses that use its payment processing services. But repayment is based on a percentage of your daily sales, which mimics how MCA repayments work. (More on that below.)

Square business loans may be a good fit if you:

  • Use Square point-of-sale services: You have to be a Square customer to qualify for a Square business loan.

  • Process a large, consistent volume of credit card sales: Square business loans are repaid using a fixed percentage of your daily credit card sales. Inconsistent or insufficient sales could leave you with a large sum to pay when your loan matures.

  • Only need to borrow a small amount: While Square offers loans up to $250,000, depending on your sales history, it's best to stick with smaller-dollar loans given the fixed fee (10% to 16% of your total loan amount) and repayment structure.

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Pros and cons

Pros

  • Easy application process.

  • Transparent pricing, no additional fees.

  • No prepayment penalty.

Cons

  • Only available to Square point-of-sale customers.

  • Short terms and small borrowing amounts.

  • Daily payments using percentage of credit card sales.

  • Potential for large payment due when loan matures.

Square business loans at a glance

Loan amount

$300 to $250,000.

Borrowing costs

On average, 10% to 16% of the loan.

Repayment

Full balance must be repaid within 18 months.

Funding time

Within days.

How Square business loans work

How to qualify: Unlike more traditional lenders with products that may be available to any qualified small-business owners, Square loans are available to only small businesses that use the Square point-of-sale product.

Square sends pre-qualification loan offers to eligible small businesses that use its POS system. Because Square has access to your transaction and sales histories through the system, it uses your current financial information to determine the loan amount and terms. You can then choose the loan amount that’s right for your business needs.

Want a loan but haven’t received an offer? You can take a short survey that helps Square analyze your business. When determining loan eligibility, the company considers payment frequency, processing volume (typically $10,000 or more per year) and your business's mix of new and returning customers.

Loan amounts: Square offers loans of $300 to $250,000. The average loan size is $6,000, according to the company.

Borrowing costs: Square charges a one-time fee, which averages from 10% to 16% of your loan amount.

Repayment terms: Square business loans are repaid using a fixed percentage of your daily credit card sales — typically 9% to 13% — similar to how a merchant cash advance repayment functions. You pay more when your sales are strong and less when sales are weak.

At least one-eighteenth of your initial loan amount must be paid every 60 days. Payments are deducted automatically from your Square account but may be drawn from your linked bank account if the minimum payment isn’t met.

Loans are designed to be paid off in a year and must be paid in full within 18 months. At that point, any unpaid balance is due in full. If you only pay the minimum every 60 days, 50% of your balance would be due when the loan matures after 18 months.

You can make additional payments toward your loan and prepay it early without a fee, though Square’s upfront fee means you won’t benefit financially from paying the loan back early.

Payment example: Say you receive a $10,000 loan with a repayment option that takes 11% of your daily sales. Here's a breakdown of the fee and total payback amount, according to the company.

Loan amount

$10,000.

Fee

$1,200, or 12% of loan.

Total payback amount

$11,200.

Percentage of daily sales for repayment

11%.

In this example, if your sales were $1,000 on a given day, you’d pay back $110 ($1,000 x 11% daily). If you maintained similar sales each day, your total loan cost of $11,200 would be paid back in a little more than three months.

However, if sales were slow and you only paid the minimum every 60 days, you would owe $5,600 when the loan matured at 18 months.

Reasons to use Square business loans

Easy application process

Square already has access to your transaction and sales records, which is a major component of most business loan applications. You may be required to submit extra documents, like a government-issued ID or your most recent business tax return, to verify your business identity and history.

Upfront information

You’ll know exactly how much you’ll owe before accepting a financing offer. While your daily payments will vary based on your sales, your daily repayment rate and total amount owed will never change.

No prepayment fee

There are no penalties for paying off your loan early. Unfortunately, there is also no incentive to do so, as the total amount paid will remain unchanged.

Where Square business loans fall short

Need to be a Square POS customer

Square loans are only available to businesses that use one of Square’s POS systems. While you can sign up for its payment processing, you’ll need to build sales history with the system before you can qualify for a loan. And the lending program alone is not enough to justify switching POS systems.

Payments are a fixed percentage of daily sales

Similar to the repayment of merchant cash advances, you’ll pay back your Square loan with a fixed percentage of your daily credit card sales. While daily payments could be a benefit for some businesses, they could throw off your business’s cash flow; some small-business owners prefer fixed weekly or monthly payments instead.

Short terms and small borrowing amounts

Square’s maximum borrowing amount is $250,000, which is smaller than loans offered by most lenders, and the average Square loan amount is $6,000. While the low limit is handy for covering everyday expenses or small inventory purchases, it won’t help with big expansions or major growth opportunities. And if you do receive an amount on the higher end, you have only 18 months to pay it back.

Compare business loans

If you’d like to compare loan options, NerdWallet has a list of the best small-business loans. Our recommendations are based on the market scope and track record of lenders, the needs of business owners and the analysis of rates and other factors, so you can make the right financing decision.