Square Loans: May Make Sense for Current Square Users
Square loans are repaid using a percentage of your daily sales rather than a fixed repayment amount.
The bottom line:
Square business loans are a fast funding option for small businesses that process payments using Square. Repayment is based on a percentage of daily sales instead of a fixed amount.
Loan details
Min. Loan Amount
$100
Max Loan Amount
$350,000
Max Term Length
18 months
Qualifications
Min. credit score
300
Min. Annual Revenue
$10,000
Pros & Cons
Pros
Easy application process.
Simple flat fee with no ongoing interest or additional fees.
Fast funding.
No prepayment penalty (but you won’t save by paying early).
Cons
Available only to Square customers.
Short terms with full payment required within 18 months.
Repayment structure can make daily payment amounts difficult to predict.
Note: Square doesn’t disclose a minimum credit score for business financing. Eligibility for financing is based on payment processing volume, payment frequency and other factors.
Square is a popular point-of-sale system and payment processor, as well as a major player in small-business financing. Businesses must use its payment processing services to be eligible for funding. Although Square calls its product a "business loan," it actually offers a merchant cash advance. This means repayment for funding is based on a percentage of your daily sales. (More on that below.)
Consider Square loans if you:
- Use Square payment processing: You have to be a Square customer to qualify for a Square business loan.
- Process a consistent volume of card sales: Square business loans require a minimum repayment amount every 60 days. If your daily card sales don’t cover the minimum payment, your Square-linked bank account may be debited, and your repayment rate may increase until your minimum is met. Inconsistent or insufficient sales could also leave you with a large sum to pay when your loan matures.
- Need to borrow only a small amount: Though Square offers advances up to $350,000, depending on your sales history, it's best to stick with smaller amounts given the flat fee and repayment structure.
» MORE: Compare the best retail loans
Square business loan details
| Loan amount | $100 to $350,000. |
| Borrowing costs | Square charges a set fee based on your loan amount. |
| Repayment | You pay a percentage of your daily sales instead of a fixed amount. The full balance must be repaid within 18 months. |
| Funding time | Once approved, funds deposit instantly into your Square checking account, or in one business day for external bank accounts. |
Square business loan eligibility
Square loans are available only to small businesses that process payments using Square. Eligible Square merchants will see loan offers on their point-of-sale system dashboard.
Square considers the following factors when determining eligibility:
- Processing volume: Businesses should typically process at least $10,000 annually.
- Payment frequency: The more consistently a business processes customer payments, the better.
- Your customer base: Square wants to see that your business has returning customers and is attracting new ones, too.
Business health, payment disputes, failed debits, existing Square business loans, prior loan applications and recent reviews of your Square account are other factors that may influence your loan eligibility.
How do Square loan payments work?
Square business loans are repaid using a fixed percentage of your daily credit card sales, which is how a typical 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 must be paid in full within 18 months, so planning your payments ahead of time can help ensure you won't be hit with a hefty remaining balance at the end of the term. For example, if you pay only the minimum every 60 days, 50% of your balance will be due when the loan matures after 18 months.
You can make additional payments toward your loan and repay it early without a fee. However, Square’s upfront fee means you won’t benefit financially from paying the loan back early.
Where Square loans stand out
Easy application process
Square accounts are reviewed regularly for eligibility, and Square loan offers are visible on your account dashboard. Square already has access to your transaction and sales records, which is a major component of most business loan applications.
Square doesn’t require a personal guarantee to secure your loan, but you may be required to submit extra documents. These can include a government-issued ID or your most recent business tax return to verify your business identity and history.
Simple fee structure
Square charges a flat fee with no other fees added to your loan total. You’ll know exactly how much you’ll owe before accepting a financing offer. Though your daily payments vary based on your sales, your daily repayment rate doesn’t change.
No prepayment fee
There are no penalties for paying off your loan early. But there is also no incentive to do so because the total amount paid will remain unchanged whether you pay it off early or at the end of the 18-month repayment period.
Where Square loans fall short
Must process payments through Square
Square loans are available only to businesses that use one of Square’s POS systems. Though you can sign up for its payment processing at any time, you’ll need to build sales history with the system before you can qualify for a Square loan. The lending program alone may not be enough to justify switching POS systems.
Daily payments can disrupt cash flow
Though daily loan payments could be a benefit for some businesses, others may find it easier to manage cash flow with fixed weekly or monthly payments. And though the rate is fixed, it could be difficult to predict daily payment amounts and whether additional payments may be needed to meet the 18-month loan term.
Short terms and risk of large lump-sum payment
Square loans must be repaid in 18 months, and if you make only minimum payments each month, you’ll still owe 50% of the loan at the end of the term. Managing a large lump-sum payment can be difficult for a small business, especially if your loan amount is on the higher end.
Square loan alternatives
If a Square loan isn’t for you, or you aren’t already a Square customer, there are several alternatives to choose from. For example, Amazon, PayPal and Shopify all offer similar products for their users. But if you’re looking for an actual loan versus a merchant cash advance, then consider these other options.
SBA microloan
U.S. Small Business Administration
SBA microloan
Max Loan Amount
$50,000
Apply now with Fundera by NerdWallet
Government-backed SBA loans are some of the most coveted loans among small-business owners since they offer some of the lowest interest rates and longest terms among all business loan types.
SBA loans are also notoriously difficult to qualify for as SBA lenders frequently require at least a couple of years of business history, strong financials and great credit to qualify.
SBA microloans, however, have slightly less strict qualification requirements than other SBA loan programs. You can qualify with a credit score of 620 and less than two years in business. Since it’s a microloan, though, you’ll only be able to borrow up to $50,000.
Fora Financial
Fora Financial
Fora Financial - Online term loan
NerdWallet Rating
4.7
Max Loan Amount
$1,500,000
with Fundera by NerdWallet
Square loans can be especially appealing if you’re facing credit challenges, lack collateral or haven’t been in business for very long. However, if the repayment structure gives you pause, you may want to consider online business loans. These are structured more like traditional business loans but often with more lenient requirements than banks.
For example, Fora Financial offers small-business term loans up to $1,500,000 and will lend to borrowers with credit scores as low as 570. You’ll still have a daily or weekly repayment schedule with Fora, though. And this lender uses factor rates instead of APRs, which make it more challenging to compare interest rates across different lenders.
Jackie Zimmerman, a former small-business and personal-loans writer for NerdWallet, contributed to this article.
Frequently asked questions
If you already use Square for a POS system and processing payments, then it’s worth considering an offer from the provider. Especially if you have consistently strong sales and only require a small amount of funding, a cash advance from Square could be worth it.
Just be aware of the short repayment term and daily repayments from your sales. You can likely find a more traditionally structured loan with longer terms and less frequent payments, especially if you have strong credit and revenue.
Square charges a flat fee rather than interest. This means your total repayment amount never changes. The benefits of this structure include a lack of compounding interest and late fees. On the other hand, you won’t save any money by paying back the advance early.