If you buy something through our links, we may earn money from our affiliate partners. Learn more.
The testing began back in May with a small number of merchants. Now the new merchant cash advance program, from credit card reader and online eCommerce services provider Square, is officially up and running.
Called Square Capital, the program seems pretty simple.
According to the company’s website, eligibility is based (obviously) on being a registered Square merchant. But it’s also based on the volume of payments you process and your “history” with the company.
Square says merchants may be invited to participate through their “Square dashboard.” Or they can request more details from the Square sales team if their revenue is more than $250,000 a year. (So this gives you a pretty good idea of where your sales need to be with the company before even thinking about the program.)
This video gives an overview of the way some small business Square customers are already using the program:
Though the terms of the advance will vary based on the specifics of the request, Square does give an example of how the program would work.
Say you ask for $10,000 to help with creating new products for your business. Square would deposit the money in your bank account.
You would then make payments back to Square with a percentage of each days sales (in this example, 10 percent), until a total of $11,000 is repaid. This includes an extra $1,000 for the service.
But Square points out this is not a loan. So the fee due back for the service will not change, no matter how long it takes to repay the total amount.
Though few other specifics are available from the company website, the percentage of daily sales is probably tied to the amount of the advance. It could also have to do with the volume of payments a merchant is currently processing with Square.
Back in May, Square merchant Extreme John shared some specifics of the company’s Capital pilot program showing three basic tiers of advances and payments:
- $3,200 with repayment of $384 at 4 percent.
- $5,600 with repayment of $672 at 7 percent.
- $8,100 with repayment of $972 at 10 percent.
Given the example on the Square website, there are probably some other options too.
Square is not the only payment processor to offer such merchant advances.
For example, PayPal merchants can get up to $8,000 with repayments at 10, 12, 15, 20 or 30 percent. The higher the percentage, the lower the one time cost added to the advance. And you must be averaging $100,000 in annual sales to qualify.
American Express also offers an annual or monthly advance to some of its merchants. The company’s website says amounts available and fixed repayment fees are based on a company’s credit and debit processing history.
Image: Square
Aira Bongco
I am guessing that this can only work on certain locations where Square is active. Though I’ll admit that I have high hopes for Square. If it managed to make it big and make it in other countries, there is a huge chance that it can replace PayPal.
Demetrius Baker
Do you have to wait a year before becoming eligible for the use of Square services? My restuarant business will open in September of 2014.
Shane Phillips
I have a hard time reading these types of articles that view Square and Paypal as the only merchant service providers in the industry…
They are the 2 largest aggregators in the industry (which means you basically get added on as an additional location to there merchant account which is why you don’t get solid reporting, customer service, and they own your information etc)
Merchant advances have been happening in the industry for years and at the moment the best one is offered through Amex. With a factor of 6-8% and the split is based on what you qualify for vs the amount you actually borrow.
If you don’t understand what a factor of a split is you really need to get some advice before taking a merchant advance.
Anita Campbell
Hi Shane, Thanks for your note.
I don’t think anyone assumes these two are the only ones offering merchant cash advances or “working capital” lines or whatever creative name they wish to give to them. I certainly don’t. We’ve covered several others recently, too, including niche offerings such as Kabbage and approaches such as eSmallBusinessLoans.
I think there are some differences, though, with these newer offerings that make the whole scene interesting:
(1) simplicity and ease of using them — you barely have to do anything to sign up for them except click a couple of buttons in some cases;
(2) reaching clientele (e.g., non-retail solo entrepreneurs and microbusinesses) that haven’t previously had such options open to them and who wouldn’t necessarily even be aware of them;
(3) don’t use insider terminology but speak in terms these business owners understand — the messaging tends to be very “user friendly.”
I happen to think all of this is an interesting and important trend affecting small businesses. Never before have so many small business owners had such convenient access to alternative funding sources. Is that good or bad? Mostly I think it’s positive, but time will tell.
– Anita
Anita Campbell
There’s another thing I’d like to add, because you raise such an interesting point, Shane.
I think that with PayPal, Square and other “big” names getting involved in cash advances and so-called alternative financing, it’s bringing merchant cash advances to the mainstream’s attention. I think it will increase demand for such sources of funding, and help the entire industry.
People who are involved in the cash advance industry may assume everyone knows all about what’s available out on the market. But really, most business owners don’t.
Just another random thought that you triggered with your interesting observations.
– Anita