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Square's financing arm, Square Capital, aims to provide cash advances to businesses unable to secure loans from traditional channels. According to Jack Dorsey, Square Capital has been growing at a fast clip: over the past year, Square's financing arm advanced over $100m to more than 20k businesses. Square Capital advanced ~$25m last month alone.
After Square lends the money, it recoups the money as part of future card sales. For example, Square may offer a business a $10,000 advance plus charge the merchant another $1,000 in fees, or 10 percent. The business will then have to pay back $11,000 and this money will automatically come out of future card sales using Square over a fixed time. Square says it will take more money out of a merchant’s’ sales if business is doing well, and will take less if business is suffering. Square says that 80% of merchants who have completed their first Square Capital advance have applied for a second round of capital.
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