Square publicly launched the service in 2014 to offer cash advances to businesses using its credit card payments app who need cash fast, and may not qualify for a loan from a bank. Square Capital identifies and reaches out to businesses it deems worthy (not the other way around, as in the case of bank loans), and uses its proprietary algorithms to determine how much to loan and what the fee structure should look like, using data such as the company’s sales and payments data, new and old purchasers, daily number of sales tickets, and cash flow, among other information. Merchants receive a lump-sum payment in exchange for an agreed-upon percentage of future sales, as well as a fee.

http://fortune.com/2015/08/05/square-capital-is-advancing-1-million-per-day-to-small-businesses/?xid=nl_termsheet