Unless you’ve been living completely offline and away from the YouTube and Facebook streaming ads, you know all about Square: the newest, hippest, fastest, and most convenient way for mobile, microbusinesses and other small operations to accept payments from their growing numbers of customers. In large part, these small operations have Square to thank for the growth they are experiencing, because it is the very ability to accept payments anytime, anywhere, and on-the-go that makes it possible for these merchants to do business in a world where fewer and fewer people are carrying old fashioned cash money.
But Square isn’t leaving it there. Just as they innovated a whole new way to get paid or make payments, they have innovated a new way for small enterprise to grow, and it is called Square Capital. Square Capital is every bit as revolutionary to the world of small business finance as Square’s mobile payment option has been. The way it works is unlike any other type of small business loan: Square chooses those it will lend to, not the other way around. In addition, Square determines how much it will loan, and the small businesses owners who opt into the loan offers won’t pay back based on a monthly statement or even with a variable APR, or anything like it.
To those in the world of big finance, the idea sounded insane, unworkable, and even naïve. But the way it works is so streamlined and simple, more than four-fifths of current Square users who were surveyed said they would have a serious interest in this kind of loan, specifically because of how it works. It goes a little something like this: just as any business with an old fashioned credit card machine pays a small percentage to the credit card companies its clientele can use to make payments, those companies who use Square that have taken a loan with Square Capital will simply have an additional small percentage tacked to that original amount until the loan is paid off.
Current users of Square generally pay about 2.75 percent per transaction when serving up hotdogs, shining shoes, or selling novelty tees from a kiosk. Those same users who then accept a loan will pay an additional percentage of each transaction, which will go directly to paying off the loan itself. Not only is this much more convenient and user-friendly for the small business owner, but it also allows small fish in a big pond to pay back a loan as business goes: when sales are off the charts, the loan gets paid back faster. Conversely, and to give Square Capital lenders a break, when there are no sales, nothing is taken out—because Square Capital loan payments are only paid back via transaction and/or if a business owner opts to pay a big sum when they can afford it.
Those looking down from above, like major players in the world of finance are suggesting that the Square business model just doesn’t have longevity—much of this is based on the fact that Square experienced losses of around $100 million last year. But when we look at the bigger picture, the kind of loyalty Square already has and the kind of support its primary demographic is looking for, there’s a great chance Square is onto something. This new kind of lending could set a new type of practice in motion, giving small and microbusinesses the kinds of practical options that help them open their doors instead of having doors slammed in their faces by big lenders who won’t give them a chance.