Need some extra funding for your small business? You may be able to get it from Square.
The startup on Wednesday launched Square Capital, a cash-advance program for businesses using its credit card readers.
Square isn't offering the advances via loan applications. Instead, it will notify eligible business owners via email or the Square Dashboard about available funding. Eligibility will be determined by sales data Square has on its merchant customers.
Businesses pay back the funding automatically by giving Square a small percentage of future card sales. For instance, if Square offers you $10,000, you may owe the company a total of $11,000 in future card sales, with 10 percent of card sales going toward that balance each day. This percentage is in addition to Square's normal processing fees (typically 2.75 percent of each swiped transaction.)
The amount of funding and its associated terms and conditions vary from advance to advance and merchant to merchant. The startup expects business owners will pay back the funds in about 10 months, but there is no concrete time frame for repayment. It tested out the advances with business owners during a pilot program.
"We're excited by the success of some of the earliest uses of Square Capital and can't wait to see what the future holds as we expand the program," Square says in a blog post.
The program may prove beneficial for small businesses in dire need of financing, especially considering the funds could appear in the merchant's bank account as soon as the next business day.
"Cash flow and access to capital are both serious issues for small businesses," says James Wester, research director of global payments at IDC. Square isn't "the first to make limited working loans to small businesses, but they are making it easier by using their own data and algorithms to determine how much to lend to their merchants," he adds. "It's that convenience that's important."
The launch of Square Capital caps off a busy month for the payments startup, which recently launched Square Feedback, a service that allows merchants to receive instant customer input via interactive receipts, and Square Order, an app that allows consumers to preorder at local shops and restaurants.
Small-business owners, would you use a cash advance from Square? Let us know in the comments section below!
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