Since entering the business lending industry in 2014, Square Capital has become a popular financing tool for small businesses. This isn’t much of a surprise when you consider the rapid rise of other online business lenders. Much like Kabbage and PayPal, Square Capital offers just one program: the Square Capital Flex Loan. Despite the flashy label, the program is nearly identical to a merchant cash advance. Borrowers are given a lump sum that is paid back via a fixed percentage of daily debit and credit card sales.
There are just a few differences between the Flex Loan and a traditional merchant cash advance. The former is only available to businesses that use the Square point-of-sale product. And while a traditional merchant cash advance typically has no real due date, the Square Capital Flex Loan must be paid back in full within eighteen months. The due date, however, apparently allows Square Capital to offer lower interest rates. Approvals are determined by a computer algorithm and can therefore be granted in a matter of days.
Seems pretty solid for any business that does a lot of debit and credit card transactions, right?
Surprises near and far
A Google search will yield countless posts from angry Square Capital customers. Many were shocked to discover their applications for working capital were rejected or their accounts had been de-activated. Most of them were not not first-time customers. They had taken out at least one loan from Square Capital and, after paying it back on time, assumed they would have no trouble qualifying for another round of funding. Some customers had taken out and paid back enough loans to give Square Capital the impression that they could clearly be trusted and were most likely depending on Square Capital to keep their businesses alive.
After examining the posts, you will notice a series of extremely common experiences and complaints. This suggests that Square Capital’s approval system is flawed, possibly for the same reasons as their two previously-mentioned peers.
Technology will always be technology
Anyone who owns a computer knows that technology will never be perfect. Even the most advanced systems are prone to glitches or malfunctions. The same concept likely applies to Square Capital, which, like Kabbage and PayPal, often appears to reject applications or de-activate accounts belonging to hard-working and successful business owners. Computer algorithms have been known to process data incorrectly. The likelihood of such errors, as quite a few PayPal customers will tell you, is significantly greater when a high amount of applications are being processed.
Customer service you can expect from big companies
Banks are one of Square Capital’s main competitors. They are notorious for providing little if any explanation after rejecting applications. It takes forever to get someone of actual use on the phone, and emails often do not receive prompt responses. Square Capital isn’t much different. In fact, most of the aforementioned complaints were centered around Square Capital’s customer service. The customers tried rigorously to get in touch with a Square Capital representative, sometimes via phone and email, and would have to wait much longer than expected before their concerns were finally addressed. If you’re wondering why someone would choose the phone over email, just ask the numerous Square Capital customers who received emails with annoyingly vague language. Common examples include “high-risk” or “suspicious” activity. You’d be hard-pressed to find a single customer who was given a clear answer that specifically referenced cash flow, revenue, payments, etc.
Taking so long to issue sufficient responses is very dangerous for business owners because they have time-sensitive obligations. Several customers appear to have lost or jeopardized crucial business relationships after Square Capital compromised the funds they expected to receive within a certain time frame.
Possible reasons for rejection
There’s a good chance that first-time customers were rejected because, according to Square Capital’s computer algorithm, their sales histories weren’t capable of fulfilling the loan’s terms. When you apply to Square Capital, the automated system determines the amount you can borrow and the percentage of your daily sales that will be deducted in order for you to pay off the debt in full in eighteen months. You must also be able to pay at least one-eighteenth of your total amount every 60 days. If your application is rejected, it’s probably because the automated system concluded that your sales history cannot fulfill these obligations. Eighteen months is a long time. It’s only natural for the average small business to experience dips in revenue or unforeseen emergencies within that period. Any notion that your cash flow is even slightly unstable could result in rejection.
As for returning customers, rejections and de-activations appear to stem from irregularities in cash flow. The customers paid off their previous loans on time, so it must have been the way they paid off the loan that caused a problem for Square Capital’s automated system. Maybe they recorded a series of very large transactions or had more minimum payments than originally anticipated. Both situations may have been the result of uncontrollable, industry-related circumstances. But you can’t explain that to a computer. And most business owners don’t have the time to engage in tedious, back-and-forth communication every time their sales numbers turn out to be a little out of the ordinary.
The Flex loan is not as good as it gets
We at United Capital Source offer a similar business funding program to Square Capital’s flex loan. Applications can be approved in just 24-48 hours, with minimal paperwork required. The repayment structure is nearly identical. But if you thought the flex loan was accessible, our merchant cash advance is arguably even easier to qualify for. At Square Capital, merchants must show sales histories capable of fulfilling a rigid repayment structure. Payments are made on a daily basis, or as frequently as you batch out your credit card sales, and smaller payments can be worked out if the business is experiencing legitimate trouble. At UCS, we have many programs where payments can be made weekly, bi-weekly, monthly, or whenever you usually batch out your debit and credit transactions.
Yes, merchants must be able to show strong revenue in order to be approved. But occasional dips in cash flow or a series of unforeseen expenses will not necessarily render you ineligible. How are we able to work with businesses like this and modify their terms following a bout of bad luck?
You can’t talk to a computer
Unlike Square Capital, PayPal, Kabbage and other online business lenders, all of our small business loans at UCS are overseen by living, breathing human beings. Our business financing experts understand the power of industry-related circumstances. A great deal of our clients, for example, are subjected to seasonality, fickle demand, or elongated business cycles. Their revenue might look rocky but, in our experience, this is in no way an indication that a client won’t be able to pay off debt if the right terms are provided. A merchant cash advance can even be approved when sales are slow, especially if the client intends to use the funds to maximize revenue in the months to follow.
Sometimes, an industry-related circumstance, external event or simple misfortune (broken equipment, etc) will affect your ability to make payments while covering regular business expenses. In these cases, all it takes is a single phone call or email to get in touch with our business financing experts. You can even speak to someone before you apply to ask any questions about our various business funding programs. Since our clients are typically very busy, we are accustomed to working around their schedules. We can talk when it is most convenient for you. Every day counts in the business world, so we never make our clients wait for a response. It’s safe to say that many discrepancies between Square Capital and their customers could have been easily solved if it wasn’t so hard to get a useful Square Capital representative on the phone.
It only gets easier after paying back your first round of funding
Perhaps the most puzzling tendency of Square Capital is rejecting applications and de-activating accounts of customers who have just paid off a loan on time. It’s just as puzzling to the team here at UCS. If you have paid off your first round of UCS funding on time and without trouble, you should have no difficulty being approved for a second round of funding. Returning Square Capital customers must apparently play the waiting game before being approved again. Your second round of funding at UCS, on the other hand, will most likely be approved and distributed even quicker than the first.
As cliche as this is, it seems that Square Capital perfectly exhibits the stereotype that big companies simply do not put as much effort into their customers. They have so many of them and do not care if they lose one due to unprofessional customer service. While UCS has grown tremendously over the past few years, we were once a small business, just like you. We do not give vague responses or omit critical information. Every UCS customer is treated with the same respect that you have given your customers and employees throughout your career.