Square Business Loans: 2023 Review
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The bottom line:
Square business loans are an option for small businesses that process payments using Square. Repayment is based on a percentage of daily sales instead of a fixed amount.
Pros & Cons
- Easy application process.
- Simple flat fee with no ongoing interest or additional fees.
- No prepayment penalty.
- 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 major player in small-business financing, having lent more than $9 billion in merchant cash advances, business loans and U.S. Small Business Administration, or SBA, loans (through the now-shuttered Paycheck Protection Program) since May 2014 when the credit card processor began offering MCAs.
Though Square no longer offers merchant cash advances, or MCAs, it does offer fixed-term loans to businesses that use its payment processing services. However, repayment is based on a percentage of daily sales, which mimics how MCA repayments work. (More on that below.)
How Much Do You Need?
Square business loans may be a good fit 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 credit card sales: Square business loans require a minimum repayment amount every 60 days. If your daily credit card sales don’t cover the minimum payment, your Square-linked bank account may be debited. 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 loans up to $250,000, depending on your sales history, it's best to stick with smaller-dollar loans given the flat fee and repayment structure.
Square business loans at a glance
$300 to $250,000.
Square charges a set fee based on your loan amount.
You pay a percentage of your daily sales instead of a fixed amount. The full balance must be repaid within 18 months.
As soon as the next business day, once approved.
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, or POS, system dashboard.
Square considers the following factors when determining eligibility:
Processing volume: Businesses should typically process at least $10,000 or more 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 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 — 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 must be paid in full within 18 months — 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.
Reasons to use Square business loans
Easy application process
Square accounts are reviewed regularly for eligibility, and loan offers are visible on your Square Dashboard. 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.
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 will 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 business 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 loan. And 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 offers loan amounts up to $250,000).
Square loan alternatives
Borrowers with good credit, strong annual revenue, collateral and a yearslong business history may find less expensive small-business loans through banks and the SBA. Business owners that don't meet traditional lending standards or have less-than-stellar credit might consider online business loans, though these can carry higher fees.