Square Loans

Square Loans (previously known as Square Capital) was launched in 2014 as an extension of Square's payment processing ecosystem to address a significant gap in the small business financing landscape. Founded by Jack Dorsey and Jim McKelvey in 2009, Square initially focused on enabling small merchants to accept credit card payments through mobile devices, but soon recognized that these same businesses faced substantial challenges accessing working capital through traditional banking channels. Square Loans emerged from the company's unique position of having direct visibility into merchants' transaction histories and cash flow patterns, enabling them to make data-driven lending decisions without relying solely on traditional credit metrics. This approach allowed Square to extend financing to many underserved businesses that might be declined by conventional lenders despite having healthy sales—particularly small retailers, restaurants, service providers, and solo entrepreneurs. The financing model was deliberately designed for simplicity and alignment with business performance: rather than complex interest calculations or rigid monthly payments, Square offers a single fixed fee and automatically collects repayments as a percentage of daily sales. This methodology creates a natural alignment between repayment obligations and business performance—when sales are strong, repayment happens faster; when sales slow, the payment burden automatically decreases. In 2021, the service was rebranded from Square Capital to Square Loans to better reflect the expansion of lending options, including both merchant cash advances and more traditional loans structures in certain markets. Throughout its evolution, Square Loans has maintained its core value proposition of making business financing accessible to merchants who might otherwise struggle to qualify for traditional bank loans, while keeping the application, approval, and repayment processes seamlessly integrated with the Square ecosystem.

What distinguishes Square Loans in the business financing ecosystem is its uniquely integrated approach that fundamentally reimagines how small businesses access working capital. Unlike traditional lenders requiring separate applications and lengthy approval processes, Square's financing is embedded directly within their payment processing platform, creating several distinct advantages. First, the eligibility and underwriting process leverages Square's comprehensive visibility into a business's actual sales performance, customer base, and cash flow patterns rather than relying primarily on personal credit scores, business credit reports, or static financial statements. This data-driven approach enables Square to extend financing to many businesses that would be declined by traditional lenders despite having healthy sales volumes—particularly newer ventures, businesses in higher-risk industries, or entrepreneurs with limited personal credit histories. Second, Square's qualification and application process is remarkably frictionless—eligible merchants receive pre-approved offers directly in their Square dashboard without needing to submit formal applications, and can accept funding with minimal documentation since Square already has access to the business's transaction history. Third, the repayment structure is uniquely aligned with business performance—rather than fixed monthly payments regardless of sales volume, Square automatically deducts a percentage of daily sales processed through their system, meaning payments naturally decrease during slower periods and increase during high-revenue periods. This approach significantly reduces the cash flow pressure that fixed-payment loans can create during business downturns. While Square's fixed fee structure typically translates to a higher effective cost compared to traditional bank loans, the combination of accessibility, speed, simplicity, and sales-aligned repayment creates compelling value for small businesses that prioritize these factors over securing the absolute lowest financing cost.

Square Loans offers a streamlined business financing solution specifically designed for merchants using Square's point-of-sale and payment processing systems. The program provides capital in amounts ranging from $300 to $250,000, with each merchant's eligibility and maximum offer based on their Square processing volume, sales consistency, customer mix, and other proprietary data metrics gleaned from their payment processing relationship. Unlike traditional loans with interest rates and amortization schedules, Square operates on a fixed-fee model—each advance comes with a single, transparent fee (typically between 10-16% of the advance amount) added to the principal for a clear total repayment amount. The repayment structure functions as a revenue-based model where Square automatically deducts a percentage (usually between 8-15%) of each day's card sales processed through their system until the total amount is repaid, with no fixed term or maturity date—businesses with higher sales volumes repay faster, while those with slower periods naturally pay less during downturns. To qualify, businesses must actively use Square for payment processing with a minimum processing history of at least three months in most cases, though there are no explicit minimum credit score requirements or annual revenue thresholds as with traditional business loans. Square's eligibility determination relies primarily on a business's payment processing patterns rather than conventional credit criteria. What particularly distinguishes Square's financing is both its application process and timing—eligible merchants receive pre-approved offers directly in their Square dashboard with no separate application required, and upon acceptance, funds are typically deposited in the merchant's linked bank account the next business day. This streamlined, integrated approach to financing works especially well for retailers, restaurants, service businesses, and other small merchants who process significant payment volume through Square and need quick access to working capital without the documentation requirements and approval timelines associated with traditional business loans.