Square, free of the legacy constraints entangling traditional lenders is upping its use of big data to give out and collect loans from small business at lightening speeds. Billy Bambrough talks to Square about their latest money spinner
What Square is doing is not really new, but it is exciting. Since they’ve existed, banks have given out loans based on what they know about their customers business, but I have yet to see a bank able to give out and collect repayments with the speed and simplicity Square has proposed.
Go deeper with GlobalData
The closest comparison to the service is credit card companies sending out pre-approved credit cards, but for businesses. The key difference between a pre-approved credit card is that there is no interest on the money borrowed, just one flat fee.
Square also don’t care how long it will take you to repay the advance. This is how confident they are in their data analytics to assess how much money a business can be safely loaned.
Quite often, unable to get a quick loan from a bank or to repay it in time, business owners are turning to this particular financial product that operates outside regulation of loans and are almost a last resort for funding. The customer takes a lump sum of money up front in exchange agrees to pay cut of future sales, plus a fixed percentage of overpayment.
This financial program enabled the company itself to make money in other ways.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataDespite the sensational success of the company in the financial market, Square has lost about $100 million in 2013. So now the owners of the company are hoping to return to its former financial glory.
Among its customers, the company has named a New York coffee shop and Cafe Grumpy, which took the cash advance for the discovery of new points of sale.
While the services of this program are in general the Square’s approved customers.
So here’s how Square Capital works. Square offers a business owner (his proven client) to a lump sum payment for example of $7,300. As an interest, Square charges the owner 14% of the additional cost which will be $1,022. So in the end the entire program the business owner will end up having to pay back $8,322.
This program is not like other loans or credits from any financial institutions: Square Capital has a cheaper fee and there is no application process or paperwork. However, advances are provided only proven customers of the company. Unlike banks – a large sum of money is given very quickly, sometimes the day of filing request.
But, there is one important detail – the business owner does not resolve itself when to rotated the advance. Money paid out 10% of the daily income of his or her business until they be paid the full amount. So according to preliminary figures businessman will pay an advance as soon as the sum of its income is $83,220.
Specified in the request amount of $8,322 will not change no matter how long the business owner will pay a daily benefit.
However, there are some downsides – the shorter payment period the more expensive will be advance percentage. If a company can repay it for a year or more percent of overpayments will reach 14%, but if you are a successful business owner and can pay the full amount in six months – interest on overpayments rises to 28%. And if you have a brilliant business month overpayment amount to all 165%.
It is not possible to determine all the "pros" and "cons" of this program without knowing the precise length of repayment.
There are clearly cases where cash may make sense for the business owner. If the business is a one-time unexpected expenses come up, for example, and cannot get a loan from the bank or may not get it fast enough, this program is extremely useful.
It’s also a good way to restore your business or start a new and successful develop it without thinking about how you have to return a huge amount of loans in a particular period. Often small business owners are hyping his case to the extraordinary success thanks to this advance financial model.
Many critical review of the program exists only because sometimes business does not have earnings enough to pay return every day. But, if the business has earned nothing, it did not pay anything, unlike some other cash programs for which the payment is still required.
