When I started my first small business, I poured my life savings into it. Six months later all that cash was gone and I wasn't making rent or car payments on time. PayPal gave me the option for a lump sum of money ($10k) in exchange for a percentage of my sales (30%) - the loan cost me about $750 dollars in interest to PayPal, and saved the business. With enough runway for 2 months, I fixed the business model and cut unnecessary staff/expenses. Six months later, the business was profitable again, all thanks to a small cash infusion.<p>The point is, I could have been homeless. PayPal's financing gave me enough time to fix a broken business model, which is a situation I'm sure many other small business owners are in.
Small business are just that: small. It takes time that they don't have to go through the normal loan application process.<p>Square wins because they already know its a good bet. The merchant wins because they don't have to spend time on something other than their core business (which is probably why they chose Square in the first place).
My first thought: what a good idea.<p>My second thought: why didn't the card issuers think of this first? They're actual banks and their whole business model is lending money.
FYI PayPal started a similar program last fall: <a href="https://www.paypal.com/webapps/workingcapital/" rel="nofollow">https://www.paypal.com/webapps/workingcapital/</a>
This is a review we wrote for Square Capital
<a href="https://www.fundastic.com/posts/25-what-does-square-capital-mean-for-small-businesses" rel="nofollow">https://www.fundastic.com/posts/25-what-does-square-capital-...</a><p>It's a much better than merchant cash advances, OnDeck or Kabbage in terms of cost.
The example given is a $10k advance with $11k paid back, but the article also says that "fees appear to be 1/8 to 1/10th of what you’d pay a typical loan organization to get your hands on cash." I'm curious how they're defining "fees," since I can't imagine a "typical loan organization" would charge 80% annual interest.
This is the financial services industry's equivalent of "We'll monetise by sticking ads around it": "We'll monetise by advancing loans and collecting interest"<p>Whoever can find more borrowers at the edges gets plenty of short term profitable business, but we all know how it ends...
I find it funny that the article repeats several times the amount of data that square. Do you know who has more data? The bank where the business has its account ;)<p>That being said, the current process from banks seems old and not really clever to me
I could see this mostly serving small businesses that already use Square. The alternatives (AR funding, bank working capital funding,...) seem to be better/cheaper than Square. Can't argue with Square though trying to expand its business.
financing working capital is a highly competitive business where banks are really good at (large balance sheets that can compete at 'no cost'). yes, this service might go to businesses that are underserved by banks, but then at what cost is this service to the smb? 10%, ouch.
This seems like a weird turn for Square to take. I would think that the regulatory crap that comes with becoming a bank would be a nightmare for someone like Square trying to move from being a payments processor to an actual lending institution.
This is a really scary thing for Square to be doing.<p>Remember the golden child that was Groupon? Their business model was not deals, but short term loans to businesses (I pay you now for X widgets minus a percentage, at some point in the future you need to provide X widgets). We all know how that one ended...