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Square Capital Review: Pros, Cons & Much More

Square Capital is the business lending division of Square, a point of sale payment service like PayPal or Stripe. 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 Capital has grown so significantly over the past five years or so.

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 Is Square Capital?

    Square Capital offers just one product: The Flex Loan. Though it’s very similar to merchant cash advance loans, the Square Capital Flex Loan bears several notable differences from traditional products. Chief among them is the fact that Square Capital is only available to Square customers. If you don’t use Square to process payments, you cannot qualify for the Flex Loan.

    Eligible businesses can borrow up to $250,000 with terms of up to eighteen months.

    What Do You Need to Apply for Square Capital?

    As far as documentation and information, the only thing you need to apply for Square Capital is a Square POS account. This is because eligibility is based almost entirely on your Square sales volume.

    Other Important Factors for Square Capital:

    The only concrete requirement for Square Capital is annual revenue (at least $10,000). There is no minimum credit score or minimum time in business. Though eligibility is based on Square sales volume, Square Capital does not have specific thresholds for monthly sales, credit or debit transactions, etc. Instead, potential borrowers must have enough Square sales to achieve what could be considered a “strong” sales history. However, it’s not clear what the criteria are for “strong.”

    This general criterion also applies to Square’s requirement for the number of customers. Eligible businesses must be able to show that they have a solid amount of new and returning customers, but once again, it’s not clear what Square constitutes as “solid.”

    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 Capital, You Need to Know That:

    The repayment structure for the Flex Loan 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.

    Square Capital also charges a one-time fee that generally amounts to 10% – 16% of your borrowing amount. This percentage, based on your sales volume, usually ranges from 9% to 13%. In other words, while the latter percentage determines your principle, the former determines how much of your daily debit and credit card sales will go to Square.

    Unlike traditional merchant cash advances, business owners must pay off all Flex 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 aforementioned fee is charged upfront, you won’t save any money by paying early.

    How To Apply With Square Capital:

    The application process for the Flex Loan is very different than most other business financing products. Here’s why:

    Step 1: Accept the Invitation

    If your sales volume indicates that you’re eligible for a Flex Loan, you’ll see an invitation on the “Capital” tab of your Square dashboard. For this reason, you don’t have to “apply” for a loan. Square will proactively let you know if you qualify.

    Step 2: Review Your Offers

    After accepting your invitation, you’ll be presented with three loan offers to choose from. Each offer will contain the borrowing amount, principle, and percentage of daily sales to Square. The proposal with the lowest borrowing amount will have the lowest percentage.

    Step 3: Choose Your Offer

    Square will verify your business’s financial information through their lending partnerCeltic Bank if you decide to choose an offer. You may be asked to upload additional documentation, like proof of your employer identification number (EIN).

    If your information checks out, funds will instantly appear in the bank account attached to your Square POS account.

    Square Capital: Post Funding

    Once you begin processing sales through Square, payments will automatically be deducted from debit and credit card sales each 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 via the “Capital” tab in your Square account.

    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 full amount in eighteen months.

    If you’re close to paying off your loan in full, Square may contact you about the second round of funding. Like your first loan, the offer will appear in the “Capital” tab of your account. You’ll also receive an email about the second loan.

    What Are the Advantages of Square Capital?

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

    Once you find out you’re eligible, you don’t even have to fill out an application, provide documentation, or speak to a representative. You just have to 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.

    Compared to a typical merchant cash advance, the Flex Loan is much cheaper. 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 Capital?

    The most significant disadvantage of Square Capital is that it’s only available for 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.

    Also, the repayment structure for the Flex Loan 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 the Flex Loan, but only to a certain point. Earlier, we noted that you have to 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.

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

    For this reason, you won’t know for sure if you’re eligible for funding until that invitation appears in your Square account.

    Apply for business funding through United Capital Source today.

    Square Capital FAQs

    How Many Times Can You Get a Square Capital Loan?

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

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

    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 not clear if you can qualify by simply processing your typical sales volume instead of gradually increasing your sales volume over time. However, Square does clarify that eligible businesses must have a solid ratio of new customers to existing customers. This suggests that you must indeed exhibit an increase in your customer base to qualify for Square Capital.

    What Are Typical Square Capital Loan Amounts?

    The minimum borrowing amount is $500, and the maximum is $250,000. According to Square, the average Flex Loan amounts to $6,000.

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

    As long as 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?

    Technically, you can’t be declined by Square Capital because there is no application process. The only form of “rejection” is not receiving loan offers in your account. This might happen if you haven’t grown your customer base, or increased sales can mostly be attributed to returning customers.

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

    Most of them 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

    If you use Square to process payments and you’ve grown your customer base, Square Capital is easily your most convenient financing option. It might also be your cheapest option since Flex Loan 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 you’d 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, it might be easier to grow your business with a different product altogether. For these reasons, UCS gives Square Capital a 4.5 out of 5 rating.

    Apply for business funding through United Capital Source today.

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    Quick funding options that won’t affect credit
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