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Running low on cash can slow your growth fast, and waiting weeks for bank approval isn't always practical. Square Capital gives existing Square sellers quick access to funding, often within a day or two, but the speed comes with higher fees than traditional loans. Not every seller receives an offer, and factor rates can make the effective cost steep. Today, you'll learn how Square Capital works, what you'll pay in fees, and three alternatives worth considering if Square's terms don't fit your needs.
How Square Capital Loans Work
Square Capital provides funding exclusively to businesses that already use Square for payment processing. The company reviews your transaction history and account performance to determine if you qualify for a loan offer. If approved, you'll see the offer directly in your Square dashboard without needing to fill out a long application.
The loan amount depends on your processing volume and how long you've been using Square. Businesses with consistent daily card sales and a great account history typically receive larger offers. Once you accept an offer, funds usually reach your linked bank account by the next business day.
Repayment happens automatically through your Square sales. The lender deducts a fixed percentage from each transaction until you've repaid the full amount. This means payments slow down during lean periods and speed up when business picks up. There's no set payment schedule, which can help with cash flow management if your revenue fluctuates throughout the year.
Square sellers don't need to worry about missing due dates since repayments sync with incoming sales. The system pulls funds directly from your Square processing activity, so you never write a check or set up a separate payment. That convenience appeals to business owners who want one less thing to track each month.
Square Capital Fees and Costs
Square Capital charges a flat fee instead of traditional interest rates. You'll know the total amount you owe from day one because the fee gets added to your loan upfront. For example, if you borrow $10,000 with a flat fee of $1,200, you'll repay $11,200 total regardless of how quickly you pay it back.
This pricing model differs significantly from loans with APRs. A traditional small business loan might charge 8% interest annually, but the total cost depends on your repayment timeline. With Square's approach, prepayment doesn't save you money. Paying off your balance in three months costs the same as stretching it over a year.
Factor rates can translate to high effective interest when calculated as APRs. Merchant cash advances and similar products often carry APRs ranging from 40% to 200%. Square doesn't publish standard rates publicly, but borrowers report fees that put their effective APRs well above traditional bank financing.
You can use online calculators to estimate what you're actually paying in annualized terms. Knowing this helps you compare Square loans against other funding options. The convenience of automatic repayment might justify higher costs for some businesses, but others will find better deals elsewhere.
The loan agreement typically doesn't require a hard credit check, which means applying will not negatively impact your credit score. Square Financial Services looks primarily at your business performance rather than your personal credit history when making decisions.
Eligibility Requirements for Square Capital
Square Capital operates on an invitation-only basis. You can't apply directly for funding. Instead, Square reviews your processing history and decides whether to extend an offer. Several factors influence loan eligibility:
Consistent sales volume through your Square account over several months
Account age showing you've been processing payments for a reasonable period of time
Limited chargebacks and disputes that might signal business problems
Strong business performance with steady or growing revenue trends
Your credit score matters less than your transaction patterns. Square wants to see reliable daily card sales that demonstrate you can handle repayment through the fixed percentage model. Businesses with seasonal fluctuations can still qualify, but extremely irregular income might disqualify you.
Square Financial Services is a Utah-chartered industrial bank and Member FDIC. The company serves Square sellers across the United States, though not every merchant receives offers. Eligibility improves with time as you build account history and maintain clean processing records. Borrowers who repay their first loan successfully often receive larger offers for future funding.
The application process essentially happens behind the scenes. Square monitors your payment processing automatically and generates offers when it determines your business meets internal criteria. Some sellers wait months before seeing their first offer, while others never qualify at all.
Pros and Cons of Square Capital
Understanding the benefits and potential downsides helps you decide if Square Capital fits your business needs. Cash flow situations vary widely, so what works for one seller might not suit another.
| Pros | Cons |
|---|---|
| Quick funding with same-day or next-day deposits once you accept an offer | Factor rates often result in high effective interest compared to traditional lenders |
| Repayment tied directly to sales means slower payments during lean periods | Funding is only available to active Square sellers, limiting who can access it |
| No collateral required, and no separate payment scheduling to manage | Limited control over repayment percentage once you accept the terms |
The automatic deduction model prevents missed payments since Square pulls funds from each transaction. Business owners appreciate not having to juggle multiple payment deadlines or worry about late fees. That said, you can't adjust the repayment percentage if your circumstances change midway through the loan term.
LendingTree notes that merchant cash advances and similar products work well for short-term needs but become expensive for longer-term financing. Square Capital falls into this category. The point-of-sale integration makes it incredibly convenient, but you're paying for that ease of use.
Businesses processing high volumes through credit cards benefit most from this model. Lower-volume sellers might find the costs harder to justify, especially if cheaper alternatives exist.
Top 3 Alternatives To Square Capital
Not every business owner qualifies for Square Capital, and even those who do might want to compare rates before committing. Lower interest rates, longer repayment terms, or more flexible loan amounts could make a significant difference to your bottom line.
Clarify Capital Business Loans and Lines of Credit
Clarify Capital offers business loans up to $5 million with APRs starting at 6%. The company provides both term loans and business lines of credit, depending on your working capital needs. Unlike Square, Clarify doesn't require collateral for most financing options and structures deals as revenue-based financing.
Working with Clarify means you get a personalized advisor who helps identify the right funding option for your situation. Approvals happen quickly, often within 24 hours, and the team focuses on building long-term relationships rather than just pushing through transactions. But perhaps the biggest advantage is flexibility in loan agreements that account for seasonal businesses or variable annual revenue.
| Feature | Square Capital | Clarify Capital |
|---|---|---|
| Maximum loan amount | Up to $350,000 | Up to $5,000,000 |
| APR/Cost structure | Flat fee (high effective APR) | APRs starting at 6% |
| Repayment method | Fixed percentage of daily sales | Flexible terms based on revenue |
| Collateral required | No | No |
| Eligibility | Invitation-only for Square sellers | Open application process |
Clarify serves small businesses nationwide and doesn't limit funding to specific payment processors. That broader access means more business owners can explore their options regardless of what point-of-sale system they use.
PayPal Working Capital
PayPal runs a program that is similar to Square's structure in many ways. Merchants who process payments through PayPal can access working capital with repayments automatically deducted from daily sales. PayPal Working Capital determines loan amounts based on your PayPal processing history, similar to how Square evaluates transaction volume.
Eligibility is limited to businesses actively using PayPal for payment processing. Loan sizes typically range smaller than what Clarify offers but can work well for businesses already embedded in the PayPal ecosystem. The repayment structure uses a fixed percentage model, so slower sales months mean lower payments, while busy periods accelerate payoff.
PayPal's terms generally align with those of Square Capital in terms of costs. Both charge fees that translate to higher effective APRs than traditional small business loans. The choice between them often comes down to which payment processor you already use rather than significant differences in pricing or flexibility.
Merchant Cash Advance (MCA) from Credibly
A merchant cash advance provides a lump sum upfront that you repay through a percentage of daily card sales. Credibly offers MCAs with flexible repayment schedules tied to your revenue patterns. The company provides quick access to business funds without requiring collateral, making it appealing for businesses that need capital fast.
MCAs carry higher costs than traditional loans, sometimes significantly so. Effective APRs for merchant cash advances can exceed 100% annually depending on terms and repayment speed. That makes them best suited for short-term working capital needs rather than long-term financing.
Credibly doesn't typically require a hard credit check, focusing instead on your processing volume and business performance. The lender looks at cash flow patterns to determine how much funding your business can support. While convenient, MCAs should be approached carefully since the costs add up quickly compared to other business financing options.
When Square Capital Makes Sense for Your Business
Square Capital works best for sellers who need quick funding in small to medium amounts. Businesses that process consistent sales through Square and are comfortable with higher effective costs in exchange for convenience will find the most value here. If you've built up account history and maintained clean processing records, larger loan offers tend to follow.
The automatic repayment structure helps if you prefer not managing separate payment schedules. Slow periods won't trigger late fees since payments automatically adjust to match your Square sales. That flexibility is particularly important for seasonal businesses or companies with unpredictable revenue patterns.
Comparing total repayment costs across lenders remains important even when convenience appeals to you. A loan that costs $2,000 more over its lifetime might not justify the ease of use, particularly if alternatives offer similar speed with better terms. Running the numbers helps you make informed decisions rather than choosing based solely on availability.
If Square Capital doesn't meet your needs or you're looking for options with lower interest rates and higher loan amounts, consider applying today with Clarify Capital for personalized business funding.
FAQs About Square Capital Loans
Small business owners considering Square Capital often have similar questions about how the loans work in practice.
Can I Repay My Square Capital Loan Early?
Early repayment doesn't reduce your total cost because Square charges a flat fee rather than accruing interest. You'll owe the same amount regardless of your payoff timeline. However, completing repayment early can unlock new loan offers faster, and freeing up your fixed percentage deduction may improve cash flow for your business.
Does Applying for a Square Capital Loan Affect My Credit Score?
Square typically doesn't conduct a hard credit check when generating loan offers, so applying won't hurt your credit score. The lender focuses on your account history and business performance instead. Defaults may affect your business credit through Square Financial Services, and some loan agreements might include a personal guarantee.
What Are Typical Square Capital Loan Amounts?
Loan amounts range from around $300 to $350,000 based on sales volume and business performance. New Square users receive smaller initial offers while the system evaluates processing patterns. Consistent repayment and a strong transaction history lead to larger future loan offers over time.
Emma Parker
Senior Funding Manager
Emma holds a B.S. in finance from NYU and has been working in the business financing industry for over a decade. She is passionate about helping small business owners grow by finding the right funding option that makes sense for them. More about the Clarify team →
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