Square CEO Jack Dorsey said in a recent interview that the company has advanced more than $100 million in small business financing to 20,000 over the last year.
For comparison, this time last year, Whole Foods Markets gave out more than $10 million through its Local Producer Loan Program for small food producers, with the overall commitment of loaning out $25 million.
The advances are disbursed through Square Capital, which opened for business to its merchant customers about a year ago.
The way Square Capital works is straightforward: Square contacts its customers who might want and be eligible for an advance. Once contacted, the business requests a certain amount of money, with the promise of paying it back, plus a percentage on top, with that same percentage of credit card sales going toward the balance. The amount advanced and the interest rate varies.
So, for instance, Square might reach out to a business and offer them $10,000, which they’d get as soon as the next business day. In return, Square would get, in this example, $11,500 of their future card sales. That money comes back to Square each day as a small percentage of the business’ card sales — say 7% in this case. There is no set time period for them to pay: they pay more when business is strong, and less if things slow down.
Square boasts that this model is better than most alternatives, since it means customers pay less on their loans when business is slow, rather than a set amount every month.
The advances can be deposited in a bank account as soon as 24 hours after approval. And since their customers are already using Square’s famous credit card reader for smartphones or its cash registers, the company gets its money back without those customers having to do anything manually or pay any monthly bills.
Square won’t say how long it is taking on average for customers to pay the company back, but it does say that 80% of its customers eventually come back for more cash.
But Dorsey balked when asked if Square Capital’s success, coupled with some of its other small business-friendly software, meant Square was becoming a company that’s aimed at only helping small companies.
“I think a lot of people have seen us in that way because small businesses don’t have tools and we’re definitely serving that. But if we were only focused on small business, we would by definition not be able to grow with them,” Dorsey told Buzzfeed.