Square changed the name of its financing arm (from Square Capital to simply Square loans), plus it upped the maximum loan size to $250,000 (from $100,000). Those changes didn’t affect our overall take on Square loans, but we did update this review to reflect those differences.
We updated our Square Capital review with the latest loan information. The biggest change? Square dropped its maximum loan size back to $100,000 (from $250,000). Lots of lenders have made similar changes in light of the pandemic’s effect on businesses, so that’s not an unusual move?just something you should know.
Have you heard of the Paycheck Protection Program? This program is part of the recently passed $2.2 trillion stimulus package and is meant to provide relief for small businesses that need extra cash to cover payroll.
The program offers loans up to $10 million to small businesses. These loans are calculated using 250% of your average monthly payroll in 2019. The program is only being offered through SBA authorized lenders.
These loans are eligible to be forgiven if at least 75% of the funding is used to pay workers and if no worker is compensated above $100,000. It’s currently not clear if that maximum includes benefits. Those who can’t get the loan forgiven will have to pay it back in two years at a 0.5% interest rate after six months of interest deferment.
Applications open on Friday, April 3, and close on June 30. The application consists of a two-page form in addition to required documentation.
If you’re a Square user who’s been offered a Square loan, you might have a few questions?like questions about how it works, how you repay it, and whether or not it’s a good deal.
Well, to make a long story short, Square loans (formerly called Square Capital loans) aren’t the best deal out there. They’re expensive and exclusive. But given the flexible borrower requirements (including no credit or collateral requirements), you may like Square loans anyway.
Square loans pricing
Square loans come in just one flavor. And while Square calls it a loan, we’ll let you in on a secret: it’s definitely a merchant cash advance (MCA). We’ll talk more about what that means in a minute. But for starters, it means that Square loans aren’t exactly cheap.
Square’s small-business loan
Data effective . At publishing time, pricing is current but subject to change. Offers may not be available in all areas.
Unlike traditional term loans, which charge interest on your loan amount, Square Capital charges a set fee on your loan. This fee won’t change over time; whether you pay off your loan in one day or one year, you’ll pay the exact same fee.
Unfortunately, Square Capital doesn’t publish its fee rates. But back in 2016, Fortune reported those fees range from 10% to 16% of the loan amount.1 So a $10,000 loan could have fees ranging from $1,000 to $1,600. Now, fees could have changed since 2016, but Square uses the example of a 14% fee on its website, so we suspect they’re still pretty close.
Those rates are actually much lower than the fees of many merchant cash advance companies; MCAs usually have a factor rate of 1.2 to 1.5, or 20% to 50% of the loan. But the APR (annual percentage rate) on a Square loan will probably still come out higher than the APR on a traditional loan.
That’s because APR describes the cost of a loan over a year. Traditional term loans have multi-year terms, so interest and fees get spread over those lengthy terms. As a result, the yearly cost is cheaper. But for a Square Capital loan, those fees don’t get spread out as much with the loan’s shorter term, making the effective APR higher.
That doesn’t necessarily mean you shouldn’t use Square Capital. After all, it has plenty of advantages that can make up for the APR. You simply need to know how it compares to your other options.
Square loans borrower requirements
Unlike most other lenders, you don’t choose Square Capital-it chooses you. Luckily, it has very low borrower requirements compared to those other lenders.
To use Square Capital, you must actively use Square’s merchant services (it’s our pick for the best mobile credit card reader). If Square likes what it sees in you-or at least, in your credit card sales-it will extend you a loan offer on your Square dashboard.
Square doesn’t reveal exactly how it determines your eligibility for a Square Capital offer quick payday loans Humboldt Tennessee, but it does look at the following from your Square history:
- Your processing volume (at least $10,000 per year)
- How recently you’ve used Square
- Your ratio of new and returning customers
- The number of chargebacks you’ve had
- The growth of your business
- Your overall activity level and history
Notice you see nothing about credit scores, tax returns, or bank statements. That means that, unlike our top choices for the best business loans, you can get business loans through Square without great credit.
And even though Square does look at your processing volume, it doesn’t ask for the $50,000 minimum revenue most other lenders look for.
So Square loans have low borrower requirements going for them. But let’s take a deeper look at how Square stacks up against other lenders.