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Square Loans Review: Pros, Cons & How To Apply

Square, a point-of-sale payment service like PayPal or Stripe, offers small business loans to merchants with a Square account. At first, Square Capital’s product might not seem unique. But when you look further into the requirements and repayment structure, it’s not difficult to see why Square Loans have grown so significantly over the several years.

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Like many other popular business financing products, Square Capital is geared towards a particular type of business. Thus, you must determine if you belong to this group before pursuing Square Capital instead of other options.

In this guide, we’ll answer the following questions and more:

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    What are Square Loans?

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    Square is a popular provider of mobile point-of-sale (POS) systems that allow merchants and other businesses to process debit and credit card sales. The company’s POS units include chip readers and other modern technology to handle payments.

    In 2014, the company began offering small business financing to complement its services. It initially rolled out a merchant cash advance product. It then formed Square Capital, which offered the Flex Loan – a modified version of a merchant cash advance.

    Square Capital then re-branded as Square Loans. The Square business loan product carries borrowing amounts between $300 and $250,000. The repayment structure follows that of a merchant cash advance, where a percentage of daily card sales get help back as the repayment amount. However, unlike a merchant cash advance, repayment only comes from sales on the Square payment system.

    How Do I Qualify for Square Capital Loans?

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    Square’s business loan product is invite-only, meaning the company notifies you when your account becomes eligible. You only need a Square POS account since eligibility is based almost entirely on your Square sales volume.

    Other Important Factors for Square Capital:

    Square doesn’t publish exact eligibility criteria. You won’t know if you qualify until you receive an offer. The company does publish some general guidelines on what businesses can do to increase the likelihood of receiving a loan offer. Those include:

    • Processing volume: Businesses need at least $10,000 in annual sales through Square to qualify.
    • Payment frequency: Frequent payments on a steady basis help improve eligibility.
    • New & Returning Customers: Square looks for a business with a healthy customer mix.
    • Growing Business: Square also looks for sellers that increase their sales volume and customer base as they are more likely to afford the repayment structure.

    Additionally, Square Capital does not lend to businesses that:

    • Have multiple chargebacks in their Square account.
    • Have recently experienced a decrease in Square sales.
    • Take advantage of Square advances by swiping their own cards.
    • Are not in good standing with a current or previous Square Capital loan.

    For Square Business Loans, You Need to Know That:

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    The repayment structure for Square business loans is the same as a merchant cash advance. But instead of deducting payments as a fixed percentage of daily debit and credit card sales, payments are only deducted from your daily debit and credit card sales processed through Square.

    Instead of a traditional interest rate or APR, Square charges a one-time, flat fee called a factor rate. Square factor rates range from 1.1 to 1.16. Factor rates work by multiplying the loan amount by the factor. For example, if you borrowed $50,000 at a factor of 1.12, it would look like this:

    $50,000 x 1.12 = $56,000 – the total fee you’d pay for borrowing the money is $6,000.

    The percentage of daily sales that go towards repayment is sometimes called a “holdback rate.” The holdback rate for a Square business loan usually falls between 9% and 13%.

    Unlike traditional merchant cash advances, business owners must pay off all Square Loans in full within 18 months. And though your daily payment depends on your sales volume, you must pay at least one-eighteenth of your principal every 60 days. Your daily payments might not put you on track to fulfill this requirement. In this case, Square might contact you about catching up.

    There are no prepayment penalties. But since the fee mentioned above is charged upfront, you won’t save money by paying early.

    How to Apply for a Square Loan:

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    Square’s business loan product is only available to Square sellers, and even then, it’s invite-only. You’ll receive an email and Square Dashboard notification when you become eligible.

    Step 1: Accept the Invitation

    Eligible Square customers can accept the invitation on their account dashboard.

    Step 2: Customize Your Offer

    The loan invite includes the borrowing amount Square offers. You cannot request more than the offer, but you can request less. Use the slider to determine your borrowing amount.

    Step 3: Final Approval & Getting Funded

    Square will verify your business’s financial information through Square Financial Services, Inc., a Utah-Chartered Industrial Bank, Member FDIC. You may be asked to upload additional documentation, like proof of your employer identification number (EIN).

    Square will perform a final check to ensure everything looks correct and then approve the loan. The company disburses the loan funds to your Square Checking Account or linked business bank account within 72 hours if approved.

    Square Capital: Post Funding

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    Your loan agreement with Square will specify a “Repayment Start Date.” The company will begin deducting a fixed percentage of your daily card sales as repayment on that day.

    Due to the aforementioned one-eighteenth rule, you should periodically check your repayment progress to ensure you’re on track to fulfill this requirement. You can easily do this in the Square Account dashboard.

    If you have extra cash, you can make a manual payment or pay off your entire loan at any time. Though manual payments won’t save on interest, you’ll be less concerned about failing to pay off the total amount in eighteen months.

    Borrowers who paid off 60%-80% of their loan may become eligible for an additional loan offer. Again, this is invite-only, so there’s no guarantee that you will receive additional offers.

    If you receive and accept an offer, the new loan funds will pay off the remaining balance of the current loan.

    What are the Advantages of Square Loans?

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    The business loan may be your most accessible and affordable financing option if you use Square to process payments. There’s no minimum credit score or time in business, unheard of in the business lending industry.

    Once you find out you’re eligible, you don’t have to fill out an application, provide documentation, or speak to a representative. You just review your offers and pick one. It’s safe to say that no other business lender will be able to offer this level of convenience.

    The loan does not require collateral or a personal guarantee, so neither your business nor personal assets are at risk. Square might put a lien on business assets for loans over $75,000.

    The Square Loan is much cheaper than a typical merchant cash advance. To clarify, a regular merchant cash advance might carry a factor rate of 1.5. With Square Capital, the highest possible factor rate is 1.16.

    Lastly, Square Capital does not charge a prepayment penalty. You won’t save on interest by paying early, but that’s better than being charged for paying early.

    What are the Disadvantages of Square Loans?

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    The most significant disadvantage of Square Capital is that it’s only available to Square customers. Much like PayPal and Stripe, many Square customers are younger, smaller businesses. Older businesses have likely used the same payment processor for years and are less likely to switch to a POS system like Square.

    Square’s loan product only goes up to $250,000. While that amount can handle many working capital needs, it might not be enough for some businesses to invest in growth. You should consider a different small business loan provider if you need more than that amount.

    Also, the repayment structure is somewhat deceiving. With a traditional merchant cash advance, payments fluctuate with sales volume.

    When you make lots of sales, you pay more, and vice versa. The same system applies to Square’s business loans, but only to a certain point.

    Earlier, we noted that you must pay at least one-eighteenth of your principal every 60 days. You also have to pay off your principal within eighteen months.

    But what if your daily payments haven’t put you on track to fulfill one of these requirements? What if you run into a string of slow days?

    You may have to make manual payments to stay on track with these requirements even though you’ve been following the rules and making daily payments thus far. Or, in some cases, Square might charge the balance from your linked bank account.

    It’s worth revisiting the fact that Square doesn’t have specific eligibility requirements for sales volume. To clarify, there’s no universal definition of “strong” sales.

    There’s also no way to discuss or challenge eligibility. Square uses an algorithm with a proprietary formula to determine eligibility. For this reason, you won’t know if you’re eligible for funding until that invitation appears in your Square account.

    Pros & Cons

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    • Easy & convenient for eligible Square sellers.
    • Flexible eligibility requirements.
    • Automatic repayments.
    • Less expensive than traditional merchant cash advances.


    • Exclusive to Square customers.
    • No process to apply for a loan or appeal loan decisions.
    • While less costly than a merchant cash advance, still more expensive than traditional small business loans.
    • Loans cap out at $250k.

    Apply for business funding through United Capital Source today.

    Square Capital FAQs

    How Many Times Can You Get a Square Capital Loan?

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    Square does not specify how many times you can take out a loan. What we do know is that loans are renewable when you’re close to paying off your first loan in full. So, you could theoretically keep taking out Square loans as long as you continuously become eligible for renewals.

    What Do Square Loan Reviews Typically Focus On?

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    While reviews for the Square POS are mixed, Square Loan reviews are fairly positive. The loan program has a 4.4 rating on TrustPilot, and the company is accredited by the Better Business Bureau with an A+ rating.

    Positive reviews talk about the ease and convenience of getting a loan. While users must wait to see if they’re eligible, the process is quick and painless once the invitation comes in.

    Many users commented that they have renewed loans with Square several times. They enjoy the ongoing relationship and continued loan offers.

    Negative reviews often talk about the price. Again, while the rates are cheaper than merchant cash advances, it’s still an expensive way to borrow. With an 18-month term, Square Loans are considered short-term loans. Most short-term financing arrangements are more expensive than traditional long-term loans.

    Several small business owners expressed frustration with being denied future rounds of financing. Again, Square uses an algorithm to determine eligibility. Several customers stated that after several renewals spanning years, they were suddenly denied a new loan and had no recourse to challenge the determination.

    Finally, several users talked about the daily repayment structure. They found that the holdback rate interrupted their regular cash flow. We highly recommend ensuring your cash flow can handle loan repayment.

    How Do I Know If I Qualify for a Loan with Square Capital?

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    This is another mystery about Square Capital. Since there’s no application process, you won’t know if you qualify until an invitation appears in your account.

    It’s unclear if you can qualify by simply processing your typical sales volume instead of gradually increasing it over time. However, Square clarifies that eligible businesses must have a solid ratio of new and existing customers. This suggests that you must exhibit an increase in your customer base to qualify for Square Capital.

    What are Typical Square Capital Loan Amounts?

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    The minimum borrowing amount is $300, and the maximum is $250,000. According to Square, the average loan amounts to $6,000.

    Will My Second Square Capital Loan Have Better Terms Than My First One?

    If you repay your first loan on time (and per the one-eighteenth rule), your second loan will likely have more favorable terms. But this might not happen if your second loan is smaller or the same size as the first.

    What if I’m Declined by Square Capital?

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    As a reminder, the loan product is invite-only. Not receiving a loan offer could be considered a form of rejection. Also, most users that receive an offer get approved, but technically it is possible to receive a denial when you go to finalize the offer if Square discovers something amiss.

    Thankfully, you don’t have to significantly increase your sales volume to qualify for the myriad of other online business lenders out there. Instead, these business lenders require consistent sales to show that your business is not failing.

    Most lenders have very low minimum credit scores and annual revenue requirements of less than $100,000. You can apply for equipment financingbad credit business loansaccounts receivable factoringSBA loans, and many other types of working capital loans with the help of United Capital Source.

    In summary, if you haven’t received loan offers from Square, this does not mean you won’t qualify for other equally advantageous products.

    Making Your Decision

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    If you use Square to process payments and have grown your customer base, Square Capital is your most convenient financing option. It might also be your cheapest option since factor rates are considerably lower than those of a traditional merchant cash advance.

    However, if you’re looking to borrow more than $250,000 or prefer another repayment structure, you should explore other options that may be more conducive to your cash flow.

    Despite Square Capital’s low factor rates, growing your business with a different product might be easier. For these reasons, UCS gives Square Capital a 4 out of 5 rating.

    Disclaimer: The Square trademark is owned by Block, Inc. and its use herein is for reference purposes only and it does not indicate sponsorship or endorsement from Block, Inc.

    Apply for business funding through United Capital Source today.

    Why Choose United Capital Source?

    Why businesses choose UCS:

    Quick funding options that won’t affect credit
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        At UCS, we understand the value of your time and want to ensure that your application has a great chance of approval. Please take note of the following details before applying:
        • To be eligible, it’s necessary to have a business bank account with a well-established U.S. bank such as Chase, Wells Fargo, Bank of America, Citibank, or other major banks. Unfortunately, online-based bank accounts like PayPal, Chime, CashApp, etc., are not permitted.
        • When describing your current average monthly sales deposits to your business bank account, please provide accurate information. Our approval process is based on your current business performance, and it’s essential to provide accurate details about your current sales in the first question on the application form. We cannot approve applications based on projected revenues after receiving funding.
        We appreciate your understanding and cooperation in ensuring a smooth and successful application process.
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